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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


GIFT 


I)r.  Waldeniai>  Westergaarc 


ELEMENTS    OF   ECONOMICS 


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THE  MACMILLAN  COMPANY 

NEW  YORK    .    BOSTON  •    CHICAGO 
DALLAS    •    SAN    FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON  •  BOMBAY  •  CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


ELEMENTS  OE  ECONOMICS 

WITH  SPECIAL  REFERENCE  TO  AMERICAN 
CONDITIONS 

FOR   THE  USE  OF  HIGH  SCHOOLS 


BY 


HENRY    REED    BURCH,   Ph.D. 

HEAD    OF   DEPARTMENT   oF   HISTORY   AND    ECONOMICS 

CENTRAL   MANUAL   TRAINLNG   HIGH    SCHOOL 

PHILADELPHIA 

AND 

SCOTT   NEARING,    Ph.D. 

WHARTON    SCHOOL   OF   FINANCE  AND    COMMERCE 
UNIVERSITY   OF   PENNSYLVANIA 


Xcto  |lork 

THE    MACMILLAN    COMPANY 

1913 

AU  rights   reserved 


Copyright,  1912, 
By  the  MACMILLAN  COMPANY. 


Set  up  and  electrotyped.     Published  May,  1912.     Reprinted 
September,  1912  ;  January,  1913. 


NortoifDtj  ^resa 

J.  S.  Cashing  Co.  —  liei-wick  &  Smith  Co. 

Norwood,  Mass.,  U.S.A. 


111.5 


Co 

THE  MEMORY   OF 
H.  B.  C. 


587230 


PREFACE 

The  growing  importance  of  the  newer  economics  makes 
necessary  a  simple  statement  of  its  fundamental  principles. 
The  present  work,  designed  especially  for  the  use  of 
secondary  schools,  has  been  prepared  with  this  object  in 
view.  Since  the  book  is  intended  primarily  for  the  begin- 
ner, every  effort  has  been  made  to  secure  simplicity  of 
treatment. 

This  simplicity  manifests  itself  chiefly  in  two  directions. 
In  the  first  place,  emphasis  has  been  laid  upon  the  con- 
crete and  descriptive  side  of  economics.  Great  attention, 
therefore,  has  been  paid  to  the  subject  of  the  production 
of  wealth,  and  much  material  of  an  industrial  character 
has  been  added.  In  the  second  place,  each  chapter  is 
preceded  by  an  outline  of  its  contents  and  followed  by  a 
series  of  questions  which  bear  on  the  general  topic  of  the 
chapter.  In  those  schools  where  only  a  very  limited 
amount  of  time  can  be  devoted  to  the  study  of  economics, 
it  will  be  found  possible  to  omit  or  summarize  certain  parts 
of  the  book  according  to  the  special  needs  of  the  students, 
or  the  particular  inclination  of  the  teacher. 

To  those  who  have  come  under  the  inspiring  influence 
of  Professor  Simon  N.  Patten,  it  is  almost  superfluous  to 
acknowledge  here  the  debt  of  obligation  embodied  in  this 
work. 

Philadelphia,  April,  191 2. 


CONTENTS 


Introduction 


PAGE 

xiii 


PART    I 
ECONOMIC   IDEALS 

CHAPTER 

I.    The  Goal  of  Economic  Endeavor 


II.    Economic  Ideals 


PART    II 
CONSUMPTION   OP^  WEALTH 


III.  Problems  of  Consumption  .... 

IV.  The  Problem  of  the  Standard  of  Living 
V.  Wages  and  Standards    .... 


20 
31 
2,7 


PART    III 


THE   PRODUCTION   OF   WEALTH 


BOOK   I.    THE   FACTORS   OF   PRODUCTION 

VI. 

Natural  Resources  of  the  United  States 

45 

VII. 

Land  Reclamation 

55 

VIII. 

Forest  Resources 

62 

IX. 

Water  Resources 

69 

X. 

American  Labor   .... 

78 

XI. 

Immigration 

88 

XII. 

The  Risks  of  Lahor     . 

94 

XIII. 

Some  Labor  Problems 

103 

X  Contents 

CHAPTER  PAGE 

XIV.  Education  of  the  Worker 113 

XV.  Capital 120 

XVI.  The  Social  Surplus 132 

BOOK   II.     PRODUCTION    IN   THE  UNITED   STATES 

XVII.  American  Agriculture 138 

XVIII.  Soil  Fertility 146 

XIX.  The  Production  of  New  Species         .        .        .152 

XX.  American  Industry 158 

XXI.  Large  Scale  Production 167 

XXII.  Business  Organization 174 

XXIII.  The  Industrial  Army 182 

XXIV.  Transportation 189 

XXV.  Regulation  of  Transportation  ....  198 

PART    IV 
EXCHANGE   OF    WEALTH 

XXVI.  Value  and  Price 206 

XXVII.  Price  and  Monopoly 214 

XXVIII.  Instruments  of  Exchange 222 

XXIX.  Modern  Finance 232 

XXX.  Foreign  Trade 240 

XXXI.  Taxation 248 


PART    V 
THE    DISTRIBUTION   OF   WEALTH 

XXXII.     Preliminary  Survey  of  Distribution         .        .  255 

XXXIII.  The  Theory  of  Rent 265 

XXXIV.  The  Theory  of  Interest 274 

XXXV.     The  Theory  of  Profits 281 


Contents 


XI 


CHAPTER 

XXXVI.     The  Theory  of  Wages 
XXXVII.    The  Outlook  for  Distribution 


PAGE 
288 


296 


PART   VI 
ECONOMIC   EXPERIMENTS   AND   PROGRAMS 

XXXVIII.  Experiments  of  the  Employer  . 

XXXIX.  Experiments  of  the  Worker     . 

XL.  The  Program  of  Regulation     . 

XLI.  Programs  of  Socialization 

XLII.  Social  and  Economic  Progress 


304 
316 

329 
337 
348 


INTRODUCTION 

Every  subject  of  study  has  its  particular  field  of  inquiry. 
Thus,  mathematics  arises  from  a  study  of  form  and  number 
and  includes,  among  other  subjects,  a  fundamental  knowl- 
edge of  geometry  and  algebra.  Physics,  in  a  similar  manner, 
investigates  the  general  realm  of  matter  and  leaves  to  chemis- 
try a  more  careful  analysis  of  the  elements  and  their  com- 
pounds. Likewise,  history  concerns  itself  with  the  general 
development  of  mankind  along  political,  industrial,  and 
social  lines ;  while  civics  deals  with  the  more  special  study 
of  government.  In  studying  economics,  we  shall  find 
that,  in  exactly  the  same  manner,  this  subject  further 
specializes  in  a  field  peculiar  to  itself  and  rests  upon  a  basis 
distinct  from  that  of  every  other  science. 

The  rapidly  growing  importance  of  economics  and  its 
vital  connection  with  everyday  hfe  combine  to  make  it 
highly  desirable  for  all  wide  awake  people  to  understand 
something  of  this  science  and  to  grasp  clearly  its  fundamen- 
tal characteristic.  Economics  arises  from  the  study  of 
wealth  and  investigates  the  problem  of  welfare.  Of  course 
welfare,  from  the  standpoint  of  material  well-being,  is  not 
possible  without  wealth.  Therefore,  in  order  to  understand 
the  objective  basis  of  economics  we  must  have  a  clear  con- 
ception of  the  meaning  of  wealth. 

Wealth  may  be  either  material  or  immaterial.  For  ex- 
ample, houses,  factories,  food,  and  clothing  are  articles  of 


xiv  Introduction 

material  wealth ;  while  health,  capacity,  and  character  are 
illustrations  of  immaterial  wealth.  Both  kinds  of  wealth 
possess  value,  but  immaterial  differs  from  material  wealth 
in  that  it  cannot  be  subjected  to  the  process  of  exchange; 
that  is,  immaterial  wealth  cannot  be  bought  and  sold  like 
food  and  clothing.  It  is  needless  to  say  that  immaterial 
wealth  is  of  greater  value  than  anything  else  in  hfe.  How- 
ever, a  study  of  this  kind  of  wealth  does  not  properly  belong 
to  the  field  of  economics,  but  is  a  legitimate  part  of  the 
science  of  education,  or  of  psychology,  or  of  ethics,  or  of  some 
similar  study.  Nevertheless,  when  immaterial  wealth  is 
productive  of  material  wealth,  economics  becomes  indirectly 
interested  in  the  solution  of  some  of  its  problems.  For 
example,  if  education  produces  efficiency  and  eflSciency  re- 
sults in  the  production  of  material  wealth,  economics  ac- 
quires an  indirect  but  real  interest  in  the  growth  of  education. 
That  is,  just  as  wealth  is  a  means  of  promoting  welfare,  so 
may  education  increase  the  amount  of  wealth  produced  by 
society. 

However,  economics  is  primarily  concerned  with  material 
wealth,  and  it  is  therefore  imperative  for  the  student  to  have 
a  clear  conception  of  its  essential  characteristics.  In  the 
first  place,  material  wealth  may  be  bought  and  sold ;  that  is, 
its  ownership  may  be  transferred  from  one  individual  to 
another.  We  have  just  seen  that  this  characteristic  is 
distinctive  of  material  wealth.  The  strength  of  a  Hercules, 
the  genius  of  a  Shakespeare,  or  the  honesty  of  a  Lincoln 
can  never  be  transferred  from  one  person  to  another.  On 
the  other  hand,  the  palaces  of  kings,  the  paintings  of  old 
masters,  or  the  products  of  a  steel  mill  may  easily  pass 
from  the  hands  of  one  into  the  possession  of  another.  It  is 
always  possible,  therefore,  for  material  wealth  —  no  matter 


Introduction  xv 

what  its  character  or  how  high  its  value  —  to  be  exchanged 
for  some  other  commodity  of  equal  value. 

But  material  wealth  possesses  something  more  than  this 
element  of  transferabiHty ;  it  possesses  the  quality  of  satis- 
f>'ing  human  wants.  Some  things  are  easily  transferred 
from  one  person  to  another,  or  from  one  place  to  another, 
and  yet  do  not  satisfy  any  individual  want.  For  example 
the  dirt  of  the  street  is  only  too  easily  brought  into  the  home, 
but  it  is  not  material  wealth  because  it  satisfies 'no  one's 
want.  However,  this  same  dirt,  needed  by  the  contractor 
in  large  quantities,  would  satisfy  an  individual  want  and 
would  in  this  case  be  regarded  as  material  wealth.  This 
want-satisfying  quality  possessed  by  material  wealth  is 
called  utility.  While  degrees  of  utility  possessed  by  differ- 
ent articles  may  vary  greatly,  yet  all  forms  of  material 
wealth  must  possess  some  utility.  It  may  readily  be  seen 
that  necessities  of  life,  such  as  food,  housing,  and  clothing, 
possess  the  greatest  possible  utility ;  that  is,  they  satisfy 
wants  that  are  most  intense  and  universal  in  all  mankind. 
On  the  other  hand,  automobiles,  books,  or  fine  pictures 
satisfy  wants  that  individuals  have  gradually  acquired,  but 
that  are  not  absolutely  essential  to  life  itself.  In  both  cases, 
however,  these  different  forms  of  material  wealth  possess 
utility;  that  is,  they  all  satisfy,  in  a  greater  or  less  degree, 
the  wants  of  mankind. 

In  addition  to  the  qualities  of  transferability  and  utility, 
material  wealth  must  possess  still  another  characteristic. 
The  wealth  with  which  economics  is  concerned  must  involve 
human  effort.  Locomotives,  footballs,  chemical  apparatus, 
maps,  textbooks,  clothing,  and  thousands  of  other  com- 
modities are  all  produced  by  man's  conscious  industrial 
effort;    that  is,  they  are  all  "economic  goods."     In  the 


xvi  Introduction 

same  manner,  in  the  production  of  commercial  coal  and 
iron  and  in  the  working  up  of  other  raw  materials  of  indus- 
try, man's  labor  is  an  essential  element  in  the  finished  prod- 
uct. When  individuals  appropriate  gifts  of  nature,  such  as 
forests  and  minerals,  they  transform  them  through  their 
industrial  effort  into  economic  goods.  On  the  other  hand, 
such  free  gifts  of  nature  as  air  and  sunshine  cannot  easily  be 
appropriated  and,  although  they  possess  the  highest  possible 
utility,  their  existence  is  not  the  result  of  any  human  effort. 
Air  and  sunlight  are  not  manufactured,  therefore  we  cannot 
properly  regard  them  as  economic  goods.  Water,  on  the 
other  hand,  while  a  free  good  in  primitive  society,  becomes 
an  economic  good  in  the  modern  city  because  human  effort 
has  been  expended  in  building  aqueducts,  laying  water 
mains,  and  otherwise  providing  a  water  supply.  Free  gifts 
of  nature  tend  to  become  economic  goods;  but,  so  long  as 
they  remain  "  free  "  and  do  not  form  an  actual  basis  for 
industrial  effort,  they  do  not  constitute  a  part  of  that  wealth 
with  which  the  study  of  economics  is  primarily  concerned. 

From  this  discussion,  therefore,  it  may  be  seen  that 
material  wealth  —  the  physical  basis  of  economics  —  is  a 
term  applied  to  all  economic  goods,  that  is,  to  those  goods 
which  may  be  transferred  from  one  individual  to  another, 
which  satisfy  human  wants  (or  possess  utility),  and  which 
represent  some  industrial  effort. 

The  beginner  in  the  field  of  economics  must  bear  in  mind 
not  only  this  concept  of  material  wealth,  but  he  must  also 
clearly  understand  the  relation  between  wealth  and  money. 
One  of  the  first  errors  into  which  he  is  likely  to  fall  is  the 
belief  that  these  two  are  synonymous,  and  that,  therefore,  a 
study  of  economics  is  merely  a  study  of  ''  How  to  make 
money."     Such    a    misconception    must    be    immediately 


Introduction  xvii 

corrected.  Material  wealth  includes  infinitely  more  than 
money,  and  the  study  of  economics  is  therefore  infinitely 
broader  than  an  ordinary  lesson  in  money-making.  The 
popular  misconception  of  the  importance  of  money  arises 
from  the  simple  fact  that  money  is  employed  by  civilized 
societies  as  a  standard  of  measuring  the  value  of  all  economic 
goods  and  as  a  means  of  exchanging  one  form  of  wealth  for 
another.  Gold  and  silver,  from  which  money  is  coined,  are 
forms  of  material  wealth ;  but  so  are  iron  and  coal,  furniture 
and  clothing,  food  and  drink,  books  and  pictures,  and 
countless  other  economic  goods.  It  is  therefore  just  as 
absurd  to  think  of  money  as  inclusive  of  all  wealth  as  to 
think  of  one  individual  as  embracing  the  human  race. 

Material  wealth,  then,  is  the  concrete  basis  of  economics. 
Without  material  wealth  no  science  of  economics  would  be 
possible.  But  a  knowledge  of  wealth,  in  and  of  itself,  is 
not  the  highest  aim  subserved  by  a  study  of  economics. 
Wealth  is  but  a  means  to  welfare,  and  the  real  purpose  of  the 
study  of  economics  is  to  understand  how  welfare  may  be 
promoted  through  the  medium  of  wealth.  Accordingly, 
in  our  treatment  of  economics,  we  shall  discuss  (i)  the  ideals 
necessary  to  attain  this  goal  of  welfare;  (2)  the  means  of 
promoting  welfare  through  the  consumption,  production, 
exchange,  and  distribution  of  wealth;  and  (3)  the  various 
efforts  of  men,  individually  and  collectively,  to  realize  the 
economic  ideal  and  to  attain  the  goal  for  which  all  are 
striving. 


ELEMENTS   OF    ECONOMICS 

PART   I 

ECONOMIC   IDEALS 

CHAPTER  I 

The   Goal   of   Economic   Endeavor 

I.  What  is  our  goal  ? 

1 .  In  play  : 

a.  Success 

b.  Achievement 

2.  In  life : 

a.  The  production  of  wealth 
h.  The  promotion  of  welfare 

3.  The  old  view  and  the  new 

II.  How  to  attain  this  goal 

1.  Through  opportunity: 
a.  Its  meaning 

h.  Its  possibilities  in  America- 

c.  Its  real  significance : 
(i)  The  older  attitude 
(2)  The  newer  view 

2.  Through  adjustment : 

a.  Its  meaning 

b.  Its  existence  in  nature 

c.  Its  never  ending  character 

d.  Its  prerequisite 

What  is  Our  Goal?  —  A  baseball  team  may  aim  to  pile 
up  a  big  score,  or  it  may  aim  to  play  a  good  game.     The 
u  1 


2  Elements  of  Economics 

big  score  is  success ;  the  good  game  is  achievement.  The 
In  play :  team  that  aims  to  pile  up  big  scores  wants  games 
Success  or  with  Weak  opponents ;  but  the  team  that  aims  to 
achieve-         p^^y  a  good  game  desires  in  its  adversaries  equal, 

if  not  greater  skill.  The  big  score  team  triumphs, 
while  the  good  game  team  learns.  The  latter  may  lose  every 
game  of  the  season,  and  yet  attain  a  proficiency  in  baseball 
far  above  that  of  the  former  team. 

It  is  thus  entirely  possible  to  play  baseball  for  scores  or 
to  play  for  the  love  of  a  good  game.  Exactly  the  same 
possibilities  present  themselves  in  the  economic  world, 
except  that  the  choices  are  rather  more  numerous  and  com- 
plex. For  example,  a  man  may  have  as  his  aim  in  life  any 
one  of  the  following  objects  of  economic  endeavor.     He  may 

strive  for  money,  the  counters  of  the  economic 

In  life : 

The  produc-  g^-mc,  and,  hke  the  miser,  hoard  them  and  gloat 
lion  of  over  them.     Or  he  may  overlook  the  counters  and 

'^'^'^^'  "  work  for  the  things  which   the  counters  repre- 

sent, —  the  wealth  of  society.  Again,  a  man  may  have 
for  his  object  the  satisfaction  of  his  wants ;  in  which  case 
he  works  for  the  counters,  exchanges  them  for  the  wealth, 
and  thus,  by  the  possession  and  use  of  the  wealth,  satisfies 
the  wants  which  led  him  to  work. 

Many  men,  however,  have  as  the  chief  object  in  life  the 
attainment  of  progress,  —  a  forward  movement  of  the  entire 
group  to  which  they  belong.  If  a  large  group  is  striving  for 
progress,  civilization  will  be  advanced  and  the  welfare  of 
The  promo-  ^^^^  member  of  the  group  will  be  augmented. 
tionofwei-  Of  coursc,  in  order  to  secure  progress,  it  will  be 
^'"'^'  necessary  to  use  money  and  wealth  in  order  to 

satisfy  the  wants  of  the  individual ;  yet  there  is  just  as  wide 
a  difference  between  working  for  wealth  and  working  for 


The  Goal  of  Economic  Endeavor  3 

welfare  as  there  is  between  playing  baseball  for  scores  and 
pla}dng  to  play  a  good  game.  In  the  first  case  man  works 
for  counters ;  in  the  second,  for  development. 

Economics  is  not  merely  ''  the  science  of  wealth  "  but  is 
becoming  more  and  more  "  the  science  of  welfare."     The 
early  idea  was   that  economic  goods  are  the  logical  end 
of  economic  endeavor ;   that  the  nation  which  is  producing 
economic  goods  in  great  abundance  is  a  successful  nation, 
irrespective  of  any  other  test.     The  newer  view  Theoid 
holds,  on  the  other  hand,  that  true  advancement  view  and 
lies,  not  in  the  production  of  goods,  but  in  de-  *  ®  '^®^' 
veloping  the  lives  of  men  and  women,  and  that,  while  this 
end  may  be  achieved  through  the  production  of  goods,  the 
production    is    merely   incidental    to   the   development   of 
manhood  and  womanhood.     Production  is  not  an  end  in 
itself,  but  merely  a  means  to  welfare. 

How  to  Attain  this  Goal.  —  The  attainment  of  welfare  — 
individual  and  social  well-being  —  depends  in  the  first  place 
upon  opportunity;  in  the  second  place  upon  adjustment. 
Let  us  examine  briefly  the  part  played  by  each  of  these 
factors  in  individual  and  social  welfare. 

Opportunity  is  an  equal  chance  given  to  the  members  of 
each  generation  to  become  unequal.  Far  from  signifying 
equaUty,  opportunity  involves  only  the  thought  that  each 
person  shall  have  an  equal  start.  The  "  starter,"  who 
shoots  the  pistol  for  the  mile  run,  does  not  make  ^, 

.  .      .  Through 

the  runners  equal  when  he  insists  that  each  start  opportun- 
at  the  same  time  from  the  same  mark.     On  the  '*y- 

.  ...  lis  meaning. 

contrary,  he  gives  the  contestants  a  fair  chance  to 
show  how  unequal  they  are.     Those  who  urge  the  necessity 
of  opportunity  are  doing  no  more  than  the  "  starter,"  — 
insisting  that  each  contestant  in  the  race  of  life  shall  start, 
fully  prepared,  with  an  equal  chance  to  do  good  work. 


4  Elements  of  Economics 

As  a  nation,  America  to-day  presents  rare  opportunities. 
Contrast,  for  a  moment,  the  conditions  of  the  eighteenth 
century  with  those  of  the  twentieth.  In  1700  capital  was 
scarce,  living  was  precarious  and,  in  order  to  secure  even  the 
bare  necessities  of  life,  men,  women,  and  children  were 
lispossibiii-  ^o^c^^  ^o  work  hard  and  continually.  In  1900, 
ties  in  howcvcr,  the  inhabitants  of  the  United  States 

have  abundant  capital  and  a  marvelously  devel- 
oped system  of  wealth  production.  The  bare  necessities 
of  hfe,  and  some  of  the  comforts  as  well,  can  be  suppKed  in 
an  eight-hour  working  day  for  adults,  while  the  children  at- 
tend school.  In  1700  the  possibilities  for  opportunity 
were  limited ;   in  1900  they  have  increased  a  hundredfold. 

The  real  significance  of  this  new  opportunity  is  aug- 
mented by  the  modern  view  of  man's  possibiHties.  Modern 
lis  real  sig-  sciencc  justifies  the  belief  that,  within  racial  lines, 
nificance.  most  men  are  born  approximately  equal  and 
normal;  hence  opportunity  is  the  chief  factor  in  human 
development. 

This  view  was  not  always  held.  Even  to-day  people  be- 
heve  in  total  depravity.  Under  this  hopeless  view  of  the 
human  race,  some  men  are  depraved,  sinful,  wicked ;  others 
are  shiftless,  lazy,  inefficient,  and  poor ;  while  the  fortunate 
ones  are  wise,  capable,  and  efficient.  During  the  cen- 
turies when  this  view  was  prevalent,  birth  was  looked 
upon  as  the  determining  factor.  This  attitude  toward  hfe 
was  an  attempt  to  justify  existing  conditions;  it  led  to 
submission  and  despondent  resignation.  It  was  all  but 
fatalistic. 

In  the  course  of  time,  however,  thinkers  arose  and  pro- 
claimed the  doctrine  of  the  equal  distribution  of  human 
capacity.     Such  men  talked  of  the  right  to  life,  liberty,  and 


The  Goal  of  Economic  Eftdeavor  5 

the  pursuit  of  happiness,  and  asserted  that  all  men  are 
created  free  and  equal.  Equalize  Opportunity,  proclaimed 
these  "  free  and  equal  "  thinkers,  and,  to  a  great  extent,  you 
equahze  achievement.  Birth  —  heredity  —  was  no  longer 
the  key  to  the  situation;  it  was  now  to  be  found  in  oppor- 
tunity and  en\ironment.  This  view  of  human  Hfe  is  full  of 
promise  and  inspiration,  transforming  men  from  fatahsts 
into  enthusiastic  workers.  According  to  its  teacliing, 
perhaps  nine-tenths  of  all  men  and  women,  in  a  given 
grade  of  civilization,  are  born  with  about  the  same  capacity 
to  do  good  work. 

Take,  for  example,  two  boys  of  equal  abihty,  bom  on  the 
same  day.  In  the  course  of  their  lives,  one  is  sent  to  high 
school  and  college  and  does  splendid  work  in  the  \"orld  ;  the 
other  is  badly  fed,  poorly  clothed,  and  sent  intc  a  cotton 
factory  at  the  age  of  twelve.  The  first  boy,  becau-e  he  had 
a  chance,  developed  in  exactly  the  same  way  that  tl  e  second 
boy  would  have  developed  had  a  chance  been  giver  .0  him. 
An  overwhelming  majority  of  people,"  like  these  two  boys, 
are  normal  at  birth  and  if  given  an  opportunity  will  lead 
normal,  happy  lives. 

Welfare  can  be  secured  only  when  a  normal  relation  is 
established  between  men  and  their  surroundings.  The  es- 
tablishment of  a  normal  relation  between  men  and  their 
surroundings  is  called  adjustment.  If  men  live  in  poverty 
when  the  world  about  them  is  rich  and  fertile,  through 
there  is  maladjustment ;  but  if  the  wealth  of  the  adjustment : 
community  is  so  divided  that  men  and  women  ^  '"«'"""«• 
are  living  in  comfort,  adjustment  has  been  secured.  The 
aim  of  adjustment  is  to  change  unfavorable  conditions  so 
that  men  may  lead  normal,  happy  lives.  Adjustment, 
therefore,  involves  an  approximation  to  the  normal. 


6  Elements  of  Economics 

The  phenomenon  of  Adjustment  is  seen  in  nature  as  well 
as  in  society.  A  river,  for  example,  adjusts  itself  to  the 
changes  in  earth  formation.  If  a  mountain  range  is  thrown 
up,  the  river  wears  down  its  bed  until,  flowing  at  a  normal 
gradient,  it  has  created  a  canyon  of  the  Colorado.  But 
Its  existence  the  river  is  not  content.  It  continues  its  work, 
tn  nature.  cutting  away  the  surrounding  hills,  until  it  flows 
through  a  great  plain  like  the  Mississippi  Valley.  Society, 
like  the  river,  seeks  to  adjust  itself  to  the  changing  contour 
of  the  environment  by  wearing  it  away  and  smoothing  it 
down  until  a  normal  relation  is  established  between  men 
and  their  surroundings.  It  accomplishes  its  purpose  by 
means  of  men  and  women  all  working  together,  cooperat- 
ing to  remove  the  obstacles  in  the  path  of  progress. 

The  process  of  adjustment  is  continuous  because  the 
normal  is  always  changing.  The  unattainable  of  one  age 
is  the  attainable  of  the  next.  Through  science,  invention, 
,,  education,  and  the  creation  of  surplus  wealth, 

Its  never  '  ^  ' 

ending  the  drcams  of  the  past,  —  the  abolition  of  slav- 

character.  e         ^  c  i        r  i  i  i 

ery,  freedom  from  overwork,  from  cold  and 
hunger,  from  famine  and  pestilence,  —  become  the  realities 
of  the  present.  Thus  the  possibilities  of  human  Hfe  are 
ever  widening. 

Men  and  women,  therefore,  who  have  the  welfare  of 
society  truly  at  heart  are  continually  striving  to  shape  social 
conditions  so  that  every  one  may  be  happiest  and  most 
effective.  If  enough  people  work  for  such  an  end,  the  full 
Its  pre-  possibihties  of  society  will  be  realized  and  the 
requisite.  normal  for  that  community  will  be  attained. 
But  to  secure  this  adjustment,  —  to  guarantee  the  welfare 
which  is  the  goal  of  economic  endeavor,  —  man  must  first 
be  given  opportunity. 


The  Goal  of  Economic  Endeavor  7 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  economic  goal  have  you  in  view  ? 

2.  \\Tiat  are  your  reasons  for  having  any  goal  ? 

3.  What  should  determine  the  choice  of  a  goal  ? 

4.  Would  you  be  willing  to  take  a  "  cinch  "  job  with  a  big  salary  ? 

5.  What  does  "  opportunity  "  mean  ? 

6.  Should  any  limit  be  placed  on  opportunity  ? 

7.  Would  not  the  opportunity  of  the  few  be  limited  if  opportunity 
were  provided  for  the  many  ? 

8.  WTiat  is  the  object  of  maintaining  unlimited  opportunity  ? 

9.  WTiat  part  can  an  individual  play  in  securing  adjustment  ? 

REFERENCES 

Introduction  to  Economics  —  H.  R.  Seager. 

Elements  of  Economics  —  C.  J.  Bulloch. 

Elementary  Economics  —  Ely  &  Wicker.  \ 

Principles  of  Economics  —  E.  R.  A.  Seligman. 


CHAPTER  II 
Economic  Ideals 

I.  Efficiency 

1.  Its  meaning 

2.  Its  importance: 

a.  To  the  employer 
h.  To  the  worker 

c.  To  the  nation 

d.  To  the  family 

3.  How  secured 

II.  Conservation 

1.  Its  meaning 

2.  Its  threefold  aspect: 

a.  Conservation  of  natural  resources : 

(i)  Forests 

(2)  Minerals  and  water  power 
h.  Conservation  of  industry 
c.  Conservation  of  vitality : 

(i)  Health 

(2)  Life 

III.  Prosperity 

1.  Its  meaning 

2.  National  prosperity  —  How  China  compares  wdth 

the  United  States : 
a.  In  population 
h.  In  race 

c.  In  natural  wealth 

d.  In  industrial  development 

e.  In  transportation  facihties 
/.    In  tradition 

8 


Economic  Ideals  9 

g.  In  controlling  environment : 

(i)  In  regard  to  rivers 

(2)  In  variety  of  food 
h.  In  social  surplus  : 

(i)  Its  origin 

(2)  Its  forms 

(3)  Its  good  results 

3.  Indi\'idual  prosperity 

4.  The  conclusion 

We  have  seen  that  the  road  to  welfare  lies  through  oppor- 
tunity and  adjustment.  To  arrive  at  his  journey's  end, 
however,  man  must  learn  the  lessons  of  efficiency,  conser- 
vation, and  prosperity. 

Efficiency  is  the  Capacity  to  secure  a  Maximum  Return 
for  a  Minimum  Outlay.  — •  Hence,  one  man  is  more  efficient 
than  another  if,  with  a  given  expenditure  of  energy,  time,  and 
material,  he  can  produce  a  larger  or  better  result  than  the 
other.     For  example,  where  two  men  are  making 

Its  meaning. 

Belgian  blocks,  one  produces  sixty  while  the  other, 
without  putting  forth  any  additional  effort,  makes  a  hun- 
dred.    The  first  man  was  clumsy  with  his  hammer;    the 
second  made  every  blow  count.     The  second  man  was  there- 
fore more  efficient  than  the  first. 

Every  progressive  employer  is  interested  both  in  his  own 
efficiency  and  in  that  of  his  workmen.     In  fact,  the  effi- 
ciency of  his  employees  is  a  measure  of  his  own  capacity; 
for  unless  he  secures  a  maximum  return  for  a  its  impor- 
minimum   outlay  of  administrative  ability,  he  * 

himself  is  inefficient.     If  he  has  a  man  soldering  employer. 
lanterns  who  makes  ten  motions  to  the  lantern,  while  the 
job  can  be  done  in  eight,  he  is  losing  some  product  every 
hour  of   the  day  through  this  man's  inefficiency.     Or,  if 


lo  Elements  of  Economics 

he  is  using  old,  out  of  date  machinery  when  more  effective 
machinery  can  be  secured,  or  if  his  plant  is  poorly  ar- 
ranged, he  is  inefficient  because  he  is  failing  to  secure  a 
maximum  return  for  a  minimum  outlay. 

The  worker  is  no  less  interested  in  efficiency  than  his 
manager,  because  his  welfare  is  as  equally  dependent  upon 
it.  The  workers  are  divided  into  groups  whose  boundaries 
To  the  a^re   measured  in   terms   of   efficiency.     At   the 

worker.  bottom  are  those  who  are  living  on  the  ragged 

edge  of  existence,  who  are  always  losing  their  positions 
because  of  their  incompetency.  Then  come  those  who 
"  stick,"  —  who  retain  their  positions  but  never  rise. 
Next  come  those  who  advance,  but  slowly.  Finally,  at  the 
top,  are  those  workers  who  are  always  advancing  and  pro- 
gressing because  they  are  always  increasing  their  efficiency. 

Efficiency  may  also  be  considered  from  the  standpoint 
To  the  of  the  nation.     Uncle  Sam  may  well  ask,  "Is 

nation.  ^]^jg  country  efficient?     Are  all  industries  doing 

efficient  work  ?  Are  our  railroads  efficiently  managed  ?  Is 
our  school  system  an  efficient  one?  " 

But  why  these  questions  ? 

"  Because,"  says  Uncle  Sam,  "  there  is  a  patch  of  country 
over  toward  the  East  called  Germany,  and  a  little  island 
over  here  in  the  West  called  Japan,  and  both  are  becoming 
marvelously  efficient." 

And  then  Uncle  Sam  adds :  "I  happen  to  want  to  sell 
a  few  of  my  products  over  in  the  East  and  back  there  in  the 
West,  but  unless  I  can  run  my  country  as  efficiently  as  they 
can,  I'm  afraid  my  markets  are  done  for." 

Finally,  we  may  look  at  efficiency  from  the  standpoint 
of  the  home.  If  it  is  necessary  that  the  father  be  able  to 
produce  efficiently  in  order  to  support  his  children,  it  is  no 


Economic  Ideals  ii 

less  necessary  that  the  mother  buy  and  keep  house  efficiently 
in  order  that  the  income  of  the  father  may  be  used  in  the 
most  advantageous  manner.  Efficiency  in  the  Tothe 
home  is  just  as  important  as  efficiency  in  the  f'^^^h- 
factory,  —  more  so,  perhaps,  in  view  of  the  many  bad  diges- 
tions and  spoiled  dispositions  that  have  grown  up  with 
inefficient  home  management. 

No  matter,  therefore,  from  what  standpoint  we  view  this 
question  we  see  its  far-reaching  importance ;  and  it  acquires 
this  importance  because  social  welfare  depends  Ho^g^. 
largely  on  efficiency.     When  a  nation  is  efficient,  ciency  is 
producing  many   goods   cheaply   and   easily,   it 
creates  the  possibility  of  universal  prosperity  in  which  all 
may  share.     Since  efficiency  is  merely  good  sense  plus  good 
training,  it  can  be  assured  only  through  the  maintenance 
of  a  successful  educational  system. 

Conservation  means  Wise  Use.  —  It  is  the  complement 
of  efficiency.  Efficiency  is  measured  by  a  maximum  of 
result ;    conservation,  by  a  minimum  of  waste. 

. ,  ,  1  •  •  1,  •    .     1    Its  meaaing. 

Although     conservation    is    usually     associated 
simply  with  natural  resources,  i.e.  minerals,  forests,  water 
power,  etc.,  it  really  includes  (i)  natural  resources,  (2)  in- 
dustry, (3)  vitality. 

The  conservation  of  natural  resources  began  with  the 
care  of  forests  which  were  so  ruthlessly  destroyed  from 
colonial  times  to  the  end  of  the  nineteenth  century.  Forests 
had  been  literally  "  butchered,"  —  all  trees,  young  as  well 
as  old,  being  cut  or  destroyed.  Then,  too,  forest  fires  of 
terrible  proportions  raged  every  year  throughout   „ 

tr      I  o  J    J  IT)  ConservaHon 

different  areas,  destroying  lives  and  property,  as  of  natural 
well  as  completing  the  forest  destruction  which  ''"'""■'^"■ 
the  timber  butchers  had  begun.     Gradually,  as  the  forests 


12  Elements  of  Economics 

disappeared  and  the  price  of  lumber  rose,  it  became  appar- 
ent that,  unless  the  forest  waste  was  stopped,  a  time  would 
come,  and  that  very  shortly,  when  there  would  be  no  more 
wood. 

Although  the  idea  of  conservation  of  natural  resources 
related  originally  to  forests,  it  has  been  expanded  until, 
to-day,  the  nation  is  fully  aroused  to  the  necessity  of  con- 
serving all  of  its  natural  wealth.  Forests  even  if  perma- 
nently destroyed  might  be  replaced,  but  minerals  are  not 
replaceable,  and  water  power,  upon  which  industry  must 
more  and  more  depend  as  coal  rises  in  price,  may  be 
monopolized  and  taken  out  of  the  hands  of  the  people. 
Everywhere  conservation  is  essential. 

Industry,  too,  offers  opportunities  for  the  conservation- 
ist. For  years,  mining  companies  threw  carelessly  aside 
the  finer  bits  of  anthracite  coal  which  have  since  proved  of 
such  value  in  making  steam  for  ofhce  buildings  and  factories. 
The  refuse  from  slaughterhouses,  formerly  thrown  away, 
Conservation  IS  now  Converted  into  a  hundred  different  kinds 
of  industry.  q{  products  in  great  packing  houses  which  "  use 
every  bit  of  a  hog  except  the  squeal."  Hoofs,  horns,  hair, 
bristles,  bones,  blood,  sinews,  fat,  hides,  intestines,  —  all 
have  some  destination,  while  the  refuse  which  remains  is 
converted  into  fertilizer.  New  inventions,  perfected  de- 
vices, new  processes  of  manufacture,  all  help  in  the  con- 
servation of  industry. 

But  most  important  of  all  is  the  problem  of  the  conserva- 
„  tion  of  men  and  women.     As  Ruskin  has  well 

Conserva- 
tion of  pointed  out,  men  and  women  are  the  most  im- 
vitahty.         portant    resource.     "  There    is   no   wealth    but 
Hfe."     Hence,  if  a  nation  would  be  truly  efficient  and  pros- 
perous, it  must    use  wisely  the  men  and  women  of  each 


Economic  Ideals  13 

generation.  This  conservation  of  vitality  may  take  the 
form  of  conserving  health  or  of  conserving  life. 

As  sick  people  cannot  do  their  best  work,  a  nation  of  sick 
people  can  scarcely  be  described  as  efficient.  In  the  United 
States  it  has  been  estimated  that  the  average  adult  is  sick 
in  bed  four  or  five  days  during  each  year ;  while  headaches, 
colds,  and  such  minor  ailments  keep  him  from  work  another 
three  or  four  days.  If,  then,  there  are  thirty  million  adults 
at  work  and  each  one  loses  seven  days  a  year,  the  total  loss, 
irrespective  of  the  loss  of  health  and  the  cost  of  drugs  and 
medical  attendance,  is  two  hundred  and  ten  milUon  working 
days  each  year.  If  half  of  this  sickness  is  preventable,  the 
nation  is  deliberately  losing  more  than  a  hundred  million 
working  days  annually  because  of  its  failure  to  adopt  the 
simplest  health  precautions,  such  as  clean  water,  pure  milk, 
clean  streets,  airy  houses,  and  the  like. 

In  the  same  way,  the  average  length  of  life  might  be 
greatly  increased  by  preserving  health  and  preventing  acci- 
dents. Perhaps  half  of  the  deaths  occurring  annually  in 
the  United  States  are  preventable,  and  would  be  prevented 
if  a  wise  conservation  policy  were  adopted.  At  present, 
the  average  length  of  life  in  the  United  States  is  about 
thirty-five  years.     It  might  be  seventy. 

So,  in  various  fields,  opportunities  offer  themselves  for 
conservation  of  natural  resources,  of  industry,  and  of  vital- 
ity. One  of  the  objects  of  economic  endeavor  is  the  adop- 
tion of  steps  that  will  insure  this  conservation. 

Prosperity  signifies  an  Abundance  of  Economic  Goods.  — 

Hence  prosr)crity  is  an  indication  of  welfare;  just 

.  Its  meaning, 

as  fame  and  honor  are  signs  of  great  achievement. 

The  meaning  of  prosperity  will  be  made  clear  by  a  con- 
trast between  China  and  the  United  States.     The  first,  a 


14  Elements  of  Economics 

land  of  wants ;  the  second,  a  land  of  plenty ;  the  first,   a 

.       nation  of  deficit;    the  second,  a  nation  of  sur- 
China  and  '  ' 

United  plus.     China    and    the    United    States,    though 

states.  equally  endowed  by  nature,  represent  wide  ex- 

tremes of  poverty  and  prosperity.     Why  is  this  ? 

In  China  there  are  four  hundred  million  people,  or  four 

times  as  many  as  there  are  in  the  United  States.     If  the 

whole  population  of  the  United  States  and  forty 

Populaliun.  •  i        o  r 

millions  more  were  to  move  into  the  State  of 
Texas,  they  would  be  about  as  close  together  as  are  the 
people  in  the  Yang-tse-Kiang- Valley  of  China. 

The  Chinese  belong  to  the  Mongolian  race.  They  are 
smaller  than  the  Caucasians  physically,  but  the  experience 
of  the  last  twenty  years  in  the  development  of  Japan,  whose 
people  are  admittedly  not  above  the  Chinese  in  capacity,  has 
shown  that  intellectually  they  are  at  least  the  equals,  if 
not  the  superiors,  of  Western  races.  Within  a  generation 
the  Japanese  have  acquired  a  knowledge  of  in- 
dustry and  science  that  the  Western  races 
labored  two  hundred  years  to  develop.  In  the  late  Russo- 
Japanese  war,  the  Japanese  loss  through  disease  was  almost 
nothing,  wliile  among  the  Russian  troops  in  that  war,  the 
American  troops  in  the  Spanish-American  War,  and  the 
British  troops  in  the  Boer  War,  the  death  roll  from  disease 
was  appalling.  This  is  only  one  instance  in  which  the  Japan- 
ese have  bettered  their  instruction,  proving  the  inherent 
capacity  of  the  Mongolian  race. 

China  possesses  natural  wealth,  which  is  equal,  if  not 
Natural  Superior,  to  that  of  any  like  area  in  the  world. 
u<eaith.  q-j^g  country  is  magnificently  watered.   The  Yang- 

tse-Kiang,  three  thousand  miles  long,  is  navigable  to  ocean- 
going vessels  for  eleven    hundred   miles.     The  Hoang-Ho, 


Economic  Ideals  15 

two  thousand  six  hundred  miles  long,  is  connected  with 
the  Yang-tse-Kiang  by  the  Imperial  Canal,  and  these  two 
rivers  and  the  canal  form  one  of  the  finest  water  systems  in 
existence.  The  cHmate  of  China  is  very  similar  to  that  of 
the  United  States.  Minerals  exist  in  abundance.  It  is 
beHeved  that  the  bituminous  and  anthracite  coal  fields  of 
China  contain  as  much  coal  as  those  of  all  the  other  countries 
of  the  world  combined. 

In  Chinese  manufacturing,  machinery  has  not  generally 
replaced  human  energy;  consequently  only  those  things 
which  will  sell  at  a  high  price,  —  such  as  silks  and  fabrics 
of  various  kinds,  —  are  generally  made.  In  spite  of  the  fact 
that  the  people  are  apparently  so  capable  and  so  industrial 
numerous  and  the  natural  resources  so  abun-  development. 
dant,  the  industries  of  China  are  practically  undeveloped. 
Despite  its  native  abundance,  iron  is  imported,  although 
proper  methods  could  produce  iron  in  China  as  cheaply  or 
more  cheaply  than  in  any  other  place  in  the  world.  Coal 
is  mined  in  very  limited  quantities  and  by  the  use  of  such 
inefficient  appliances  that  only  the  rich  can  afford  to  buy  it. 
The  transportation  facilities  except  on  the  waterways  are 
so  poor  that  a  bulky  commodity,  like  coal,  cannot  be  shipped 
for  any  distance  before  its  price  has  become  prohibitive  to  all 
except  the  most  wealthy. 

Here,  then,  is  a  picture  of  a  land  full  o(  capable  people, 
abounding  in  natural  resources,  but  without  industry,  and 
therefore    in    constant    danger   of    want.     Crop   j-ransporta- 
failure  in  a  district  remote  from  water  transporta-  tionjacUi- 
tion  means  starvation.     There  are  few  railroads ; 
the  roads  arc  bad.     People  starve  within  a  few  hundred 
miles  of  an  abundant  sui)i)Iy  of  food,  because  there  are  no 
means  of  transporting  bulky  com  moch" tics. 


1 6  Elements  of  Economics 

It  may  seem  inconclusive  to  say  that  the  backward  con- 
dition of  China  is  due  to  a  lack  of  organized  industry, 
since  the  absence  of   industry  is  due,  in  large 

Tradition.  i  i-      i  i  •  r  a  -%ir 

measure,  to  a  blmd  worship  oi  custom.  My 
father  used  this  tool  "  is  a  conclusive  argument  in  the  ears 
of  the  son,  and  he  uses  the  same  tool  without  question. 
The  people  of  the  United  States,  however,  have  always 
developed  industry  irrespective  of  tradition,  because  they 
know  that  only  through  the  breaking  of  tradition  can 
progress  be  made. 

China  exists  in  a  state  of  deficit  and  the  United  States  in  a 
state  of  surplus,  although  in  both  countries  there  are  capable 
populations  and  great  natural  resources.  What  is  the  cause 
of  this  difference  between  two  nations  so  similarly  situated? 
Briefly  stated,  it  is  this  :  the  people  of  the  United  States  have 
learned  to  control  their  environment,  and  the 

Control  over 

environ-  Chinese  have  not.  Instead  of  letting  nature 
ment.  dominate  them,  the  people  of  the  United  States 

have  learned  in  a  large  measure  to  dominate  nature.  If  the 
Mississippi  overflows  its  banks,  as  it  sometimes  does,  the 
people  are  not  drowned  by  the  tens  of  thousands,  because, 
long  before  the  break  occurs  or  the  water  reaches  a  town,  the 
news  of  the  coming  flood  has  been  sent  over  telegraph  wires 
and  the  people  are  prepared  to  meet  it  or  else  have  left  for 
places  of  safety.  As  a  rule,  however,  the  Mississippi  is  not 
allowed  to  overflow  its  banks,  although  it  is  in  exactly  the 
same  position  as  the  Hoang-Ho,  flowing  in  a  channel  which 
is  above  the  level  of  the  surrounding  country. 

The  control  of  Americans  over  their  environment  may  be 
seen  in  another  direction.  The  Chinese  depend  upon  one 
crop,  —  rice.  If  the  rice  crop  fails,  the  Chinese  starve. 
The  people  of  the  United  States,  however,  do  not  depend 


Econotnic  Ideals  17 

on  one  crop.  A  great  part  of  their  food  is  derived  from 
wheat ;  but  through  the  development  of  the  milhng  indus- 
try, the  beef  industry,  the  canning  and  preserving  industry, 
and  a  score  of  others,  it  has  been  possible  to  Hve  successfully 
through  a  time  of  shortage  in  one  crop  without  being  in  im- 
mediate danger  from  starvation. 

The  United  States,  unUke  China,  has  developed  a  social 
surplus.     All  of  the  products  of  industry  are  not  Social 
consumed  at  once,  —  part  of  them  is  stored  up  to  '^''P^^'- 
assist  in  future  production.     The  development  of  the  social 
surplus  is  one  of  the  great  steps  in  civihzation. 

When  the  savage  of  Australasia  found  a  whale,  which  had 
drifted  ashore  in  a  storm,  he  at  once  summoned  his  friends 
and  neighbors  and  had  a  banquet.  Sometimes  they  ate  for 
a  week,  and  sometimes  longer,  and  sometimes  they  died 
from  overeating;  but  they  ate  until  all  of  the  whale  was 
gone  and  then  eked  out  an  existence  on  berries  and  such 
food  as  they  could  find  until  the  gods  should  send  them 
another  whale.  Americans,  however,  have  a  different 
method  of  treating  food.  When  a  large  amount  of  food, 
or  its  equivalent  in  money,  is  secured  by  a  man,  he  does 
not  eat  or  drink  it  up  at  once,  but  puts  by  a  portion  of 
this  wealth  for  a  "  rainy  day."  Thus  he  creates  a  social 
surplus. 

As  many  people  have  been  saving  in  this  way,  great  masses 
of  surplus  wealth  have  been  stored  up  in  the  form  of  rail- 
roads, factories,  machine  shops,  houses,  and  public  build- 
ings ;  and  these  things  accruing  year  after  year  serve  to 
increase  the  productive  efficiency  of  the  jK'oplc  and  to 
render  them  more  capable  of  supplying  themselves  with  the 
goods  that  they  desire.  Not  only  does  this  surplus,  stored 
up  and  added  to  year  after  year,  guarantee  the  nation  against 


1 8  Elements  of  Economics 

starvation  and  absolute  want,  but  in  addition  it  supplies 
men  with  the  comforts  and  pleasures  of  life. 

The  important  results  of  this  social  surplus  may  be  seen 
in  the  problem  of  food.  While  the  Chinese  live  upon  rice, 
people  in  the  United  States  are  able  to  secure  all  kinds  of 
nourishing  food.  They  have  meat,  which  is  a  luxury  in 
China ;  they  have  sugar  in  large  quantities,  and  an  abun- 
dance of  fruit  and  vegetables  in  summer  and  winter.  Food 
is  provided  in  variety  as  well  as  in  abundance.  Mechanical 
inventions,  one  form  of  social  surplus,  have  increased  and 
varied  the  consumption  of  food  in  the  United  States. 

The  presence  of  a  social  surplus  means  national  prosperity. 
However,  since  the  real  end  of  national  prosperity  is  indi- 
vidual prosperity,  national  wealth  is  of  little  real  value 
unless  it  is  distributed  among  the  individuals  composing 
Individual  the  nation.  The  United  States  is  immensely 
prosperity,  wealthy;  great  quantities  of  additional  wealth 
are  produced  each  year ;  increasing  capital  is  enlarging 
the  possibilities  of  wealth  production.  It  is  not  enough 
to  state  that  the  country  is  rich.  What  becomes  of  these 
riches?  Dickens  draws  a  sharp  contrast  between  national 
and  individual  prosperity.  In  "  Hard  Times,"  Mr.  Mc- 
Choakumchild,  the  schoolmaster,  who  is  teaching  poHtical 
economy,  says:  "Now  this  schoolroom  is  a  nation  and 
in  this  nation  are  fifty  millions  in  money.  Girl  number 
twenty,  is  not  this  a  prosperous  nation,  and  ain't  you  in 
a  thriving  state?  "  And  girl  number  twenty,  the  daughter 
of  a  circus  rider,  replies  that  she  cannot  say  whether  or  not 
it  is  a  prosperous  nation  and  whether  or  not  she  is  in  a  pros- 
perous state  until  she  knows  who  has  the  money  and  whether 
any  of  it  is  hers. 

The  United  States  cannot  be  truly  prosperous  and  we  as 


Economic  Ideals  19 

indi\'iduals  cannot  be  well  off  unless  all  of  us  share  in  the 
national  prosperity.     The  real  test  of  prosperity  The  conciu- 
must  be,   not  national  wealth,   but  individual  ^'°°- 
welfare;    and  to  attain  this  welfare   we   must  constantly 
be  guided  by  the  ideals  of  efficiency  and  conservation. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  WTiat  is  the  dictionary-  definition  of  an  ideal  ? 

2.  What  is  your  definition  of  an  ideal  ? 

3.  What  are  economic  ideals  ? 

4.  How  many  economic  ideals  can  you  name  ? 

5.  Of  what  value  are  economic  ideals  to  the  individual  ? 

6.  To  the  social  group  ? 

7.  WTiat  are  your  reasons  for  wishing  to  be  efficient  ? 

8.  Do  you  believe  in  conservation  ? 

Q.  If  conservation  benefits  the  future  only,  how  can  it  be  justified  ? 

10.  Wliy  are  national   prosperity   and   individual  prosperity  not 
synonymous  ? 

11.  Which  of   the   three  economic  ideals  is  most  necessary  in  the 
United  States  to-day  ?    Why  ? 

•■• 

REFERENCES 

Social  Forces  —  E.  T.  Devine. 

The  New  Basis  of  Civilization  —  S.  N.  Patten. 

Social  Adjustment  —  Scott  Nearing. 

Conservation  of  Natural  Resources  in  the  United  States  —  C.  R.  Van 

Hise. 
State  Insurance  —  F.  W.  Lewis. 


PART  II 
CONSUMPTION   OF   WEALTH 

CHAPTER  III 

Problems  of  Consumption 

I.  The  economic  life 

1 .  Its  ideal 

2.  How  to  measure  this  ideal : 

a.  Through  the  consumption  of  wealth : 
(i)  The  meaning  of  consumption 

(2)  Consumption  necessary  to  adult  life 

b.  Through  the  production  of  wealth  : 
(i)  Why  production  is  vital 

(2)  The  economic  life  two-sided 

II.  Wants  and  their  satisfaction 

1 .  Standard  of  living  : 

a.  What  it  means 

b.  How  it  depends  upon : 

(i)  The  wants  of  individuals 
(2)  The  cost  of  commodities 

2.  Wants : 

a.  Meaning 

b.  Kinds 

3.  Utility: 

a.  Meaning 

b.  Kinds : 

(i)  Natural  utiHties 

(2)  Place  utilities 

(3)  Time  utilities 

(4)  Form  utilities 

c.  Law  of  utility 


Problems  of  Consumption  21 

III.  Principles  governing  consumption 

1.  Importance  of  consumption 

2.  Principles  of  consumption : 

a.  Consumption  should  be  regular 
h.  Consumption  should  be  varied  : 

(i)  Disadvantages  of  sameness 

(2)  Advantages  of  variety 
c.  Result  of  stability  and  variety 

The  Economic  Life.  —  Life  has  a  distinctly  economic 
background.  Food,  clothing,  shelter,  and  recreation,  upon 
which  Hfe  so  intimately  depends,  are  the  products  of  eco- 
nomic endeavor.  All  life  is  not  economic ;  there  is  more 
than  the  economic  in  Kfe ;  and  yet  all  life  is  dependent  upon 
the  economic  for  its  continuance. 

When  therefore  we  speak  of  the  economic  life  we  mean 
that  life  which  has  welfare  as  its  goal.  Welfare  may  be 
social  or  individual,  and  it  is  possible  that  the  ,    .^    . 

.  1       ^^^  ideal. 

two  may  not  always  harmonize.     Socially  speak- 
ing, welfare  is  increased  by  the  adoption  of  universal  edu- 
cation ;   but  it  may  happen  that  the  educational  system  is 
unsuited  to  one  individual  in  the  social  group.     The  idea 
of  social  welfare  must  not  exclude  individual  welfare. 

There  are,  perhaps,  two  measures  of  this  welfare.     The 
first,  a  measure  in  terms  of  the  consumption  of  jjo^^gas- 
wealth,  conceives  of  welfare  as  resulting  from  the  ured: 
satisfaction  of  economic  wants.     The  second,  a    Throufih 

.  .  ,   ,       consumption. 

measure  in  terms  of  the  production  01  wealth, 
conceives  of  welfare  as  resulting  from  surplus  wealth. 

The  consumption  of  wealth  is  the  using  of  economic  goods 
to  satisfy  human  wants.  Each  child  is  a  consumer.  For  a 
period  ranging  from  ten  to  twenty-five  years,  the  children 
born  into  American  homes  arc  not  producing  economic  goods 


22  Elements  of  Economics 

at  all.  During  this  entire  period  of  youth  they  are  main- 
tained through  the  surplus  created  by  the  other  workers 
of  the  community.  Every  adult  while  preparing  to  produce 
has  passed  through  this  era  of  consumption.  When  this 
consumption  stage  is  prolonged,  when  the  child's  preparation 
for  life  is  very  complete,  when  efficiency  has  been  assured 
by  a  sufficient  supply  of  economic  goods  during  the  imma- 
ture period,  individual  welfare  is  conserved  and  social  wel- 
fare promoted  because  the  long  period  of  consuming  with- 
out producing  will  probably  result  in  more  efficient  adult 
production. 

If  youth  has  been  wisely  spent,  the  years  of  adult  life 
should  show  a  large  surplus  of  production  over  consumption. 
This  surplus,  which  the  individual  owes  to  the  community 
for  his  early  years  of  maintenance,  is  used  to  support  the 
children  who,  in  the  next  generation,  devote  many  years 
to  consumption  and  training  and  thus  guarantee  their  own 
efficiency  in  manhood.  The  economic  hfe  may  be  lived 
by  the  adult,  however,  only  so  long  as  an  adequate  supply 
of  consumption  goods  is  provided.  Consumption  provides 
the  basis  for  youth  and  development,  but  it  is  no  less  essen- 
tial to  efficiency  in  adult  life. 

Goods  cannot,  however,  be  consumed  until  they  are  pro- 
duced. Men  cannot  eat  without  working.  Children  can- 
not be  kept  in  school  until  they  are  eighteen,  consuming 
constantly  but  never  producing,  unless  some  of  the  adult 
Through  producers  are  creating  more  wealth  than  they 
production,  thcmsclves  are  consuming.  The  economic  life 
on  its  productive  side,  therefore,  presupposes  that  the  pro- 
ducing members  of  the  community  are  producing  enough, 
in  addition  to  the  amount  that  they  actually  consume,  to 
enable  the  immature  members  of  the  community  and  those 


Problems  of  Consumption  23 

beyond  the  period  of  active  work  to  maintain  themselves. 
Differently  expressed,  each  producer  must  create  a  surplus 
over  the  amount  which  he  consumes. 

The  economic  life  is  much  more  than  consumption.  It  is 
consumption  plus  production.  While  human  wants  are 
satisfied  directly  through  consumption,  it  is  through  pro- 
duction that  consumption  is  made  possible.  There  is  in  this 
concept  of  the  economic  life  no  place  for  idlers.  Every 
normal  adult  man  or  woman  must  be  a  producer  as  well  as 
a  consumer,  because  the  individual  who  accepts  a  return 
where  no  service  has  been  rendered  inevitably  loses  his  self- 
respect.  Each  member  of  an  economic  society  will  render 
the  community  such  service  as  he  can  render,  receiving  in 
return  from  birth  to  death  at  least  enough  consumption 
goods  to  maintain  life  and  efficiency.  In  this  way  the  ideal 
of  the  economic  life  will  be  approached. 

Wants  and  Their  Satisfaction.  —  The  consumption  of 
wealth  is  a  far  better  measure  of  welfare  than  the  production 
of  wealth  because  the  amount  of  consumption  can  be  so 
effectively  determined  in  the  individual  case,  standard  of 
This  measurement  of  the  consumption  of  a  par-  living: 
ticular  individual  is  called  his  "  standard  of  liv-  ^'^  meaning. 
ing."  The  amount  of  goods  which  an  individual  consumes 
depends  upon  his  income,  the  character  of  his  wants,  and 
the  cost  of  satisfying  them. 

Wants  vary  with  the  individual ;  so  that  the  supply  of 
economic  goods  which  would  suflice  in  the  case  of  one  indi- 
vidual or  family  would  not  sufiice  in  the  case   „., 

•^  M  hat  a 

of  another.     If  a  man  is  fond  of  good  pictures,  standard 
his  wants  are  extremely  expensive ;    if  he  likes    '^^"'  ^ ""' 
books,  they  are  only  less  so ;    while,  if  he  is  satisfied  with 
magazines    and    newspapers,    they    are    cheaply   supplied. 


24  Elements  of  Economics 

Likewise,  food  varies  from  individual  to  individual  and  from 
family  to  family ;  as  does  also  the  demand  for  clothing  and 
housing.  A  standard  of  living,  therefore,  depends  upon  the 
number  and  character  of  wants,  which  become  more  and 
more  complex  as  civilization  advances. 

The  cost  of  living  also  plays  an  important  part  in  deter- 
mining the  amount  of  goods  which  a  man  consumes.  A 
man  with  a  $2000  income,  who  pays  fifty  cents  a  pound  for 
butter,  is  not  so  well  off  as  a  man  with  a  $1500  income  who 
buys  the  same  butter  for  twenty-five  cents  a  pound.  The 
purchasing  power  of  income  is  a  very  important  factor  in 
determining  the  standard  of  living. 

Wants  necessarily  play  a  large  part  in  the  shaping  of  the 
economic  fife.  A  want  is  a  desire  for  a  ''  good  "  ;  a  good  is 
an  object  or  commodity  which  can  be  used  in  consumption. 
A  want  may  be  either  elementary  or  acquired.  Elementary 
wants  are  natural,  including  the  wants  for  food,  shelter, 
Wants:  ^^^  clotliing.  In  a  greater  or  less  degree,  man 
Meaning  sharcs  thesc  wants  in  common  with  animals. 
an  m  s.  Acquired  wants  are  part  of  our  social  heritage ; 
that  is,  they  have  come  down  to  us  as  a  result  of  the  pro- 
cess of  civilization.  Among  them  are  included  the  wants 
for  bathtubs,  furniture,  paved  streets,  and  the  like.  The 
natural  wants  are  desires  for  the  necessaries  of  Ufe;  the 
acquired  wants  are  desires  for  its  comforts  and  luxuries. 

All  economic  wants,  whether  elementary  or  acquired,  are 
satisfied  by  goods.  Each  good  has  the  capacity  to  satisfy  a 
particular  want.  Food  satisfies  hunger;  drink  quenches 
Utilities :  thirst ;  coal  provides  warmth ;  shelter  furnishes 
Meaning.  protection.  Thcse  qualities  in  economic  goods 
which  satisfy  human  wants  we  call  utilities.  Utility  must 
not  be  confounded  with  usefulness ;    for  it  is  perfectly  pos- 


Problems  of  Consumption  25 

sible  for  a  commodity  to  possess  utility  without  being  useful. 
A  diamond  pin  may  not  be  useful,  but  it  may  satisfy  one's 
desire  for  show.  In  economics,  the  word  utility  signifies 
the  presence  of  some  want-satisfying  quality. 

Utihties  are  of  four  kinds:  (i)  natural;  (2)  place;  (3) 
time ;  and  (4)  form. 

Natural  utilities  exist  in  the  good  because  of  its  inherent 
nature.  Coal,  for  example,  though  embedded  in  the  vein, 
possesses  utility.  To  be  sure  this  utility  cannot  be  made 
available  without  an  intermediary  process  called  mining; 
but  the  coal,  like  many  other  natural  goods,  possesses  in 
itself  the  power  to  satisfy  wants. 

A  place  utihty  is  created  when  economic  goods  are  taken 
from  a  place  where  they  are  not  needed  to  a  place  where 
they  are  needed.  Transportation  creates  place  utihties  in 
economic  goods.  Cotton  in  certain  parts  of  the  South  and 
corn  in  certain  parts  of  the  West  are  of  such  low  utility  that 
they  are  sometimes  burned  for  fuel,  but  the  transportation 
of  either  commodity  to  Massachusetts  greatly  enhances  its 
want-satisfying  qualities.  The  utilities  in  the  goods  have 
been  increased  by  transportation  because  cotton  or  corn 
will  satisfy  more  wants  in  Boston  than  in  Texas  or  Kansas. 
Transportation  has  therefore  created  place  utility  in  these 
goods. 

Time  utilities  are  created  by  holding  economic  goods 
from  the  time  they  are  not  wanted  till  the  time  they  are 
wanted.  Ice  in  January  is  seldom  wanted  and  therefore 
possesses  little  utility,  but  the  same  ice  stored  until  July 
is  frequently  wanted  and  therefore  possesses  great  utihty. 
This  increase  in  utility  due  to  the  lapse  of  time  is  called 
time  utility. 

Form  utility,  created  by  a  change  in  the  appearance  or 


26  Elements  of  Economics 

inherent  qualities  of  a  good,  is  the  most  usual  of  the  four. 
A  chair  in  the  furniture  factory  possesses  a  greater  want- 
satisfying  capacity  than  the  boards  in  a  lumber  yard.  The 
clay  in  the  clay  pit  will  not  satisfy  nearly  so  many  wants  as 
the  clay  pressed  into  a  brick  and  baked,  ready  for  build- 
ing operations.  Form  utilities  are  the  creations  of  manu- 
facturing processes ;  hence,  each  increase  in  manufacturing 
augments  the  total  of  form  utilities. 

After  utiHties  have  been  created  or  augmented  in  a  good, 
this  good  does  not  possess  the  same  want-satisfying  quaUty 
under  all  conditions.  Its  utility  will  vary  with  the  individ- 
ual and  with  the  amount  and  kind  of  good.  Goods  which 
provide  the  necessities  of  hfe  possess  more  general  utiHty 
than  goods  which  provide  only  the  luxuries.  A  coat  pos- 
sesses more  utility  for  a  cold  man  than  for  a  warm  one. 
This  variation  in  utility  gives  rise  to  the  formulation  of 
the  law  of  utiHty,  —  increasing  amounts  of  a  good  mean 
a  decreasing  utility  in  each  amount  consumed. 

Suppose  you  have  been  taking  a  long  tramp  and  are  stroll- 
ing along  a  hot  country  road.  You  are  tired  and  thirsty 
and  long  for  some  luscious  fruit  to  refresh  you.  The  thought 
of  an  apple  comes  into  your  mind  and  you  feel  an  intense 
want.  If  you  could  get  just  one  apple,  it  would  possess  very 
great  utility  for  you.  As  you  trudge  along  you  find,  quite 
unexpectedly,  that  your  longing  is  about  to  be  satisfied. 
Law  of  A  farmer  hails  you,  and  being  loaded  do'\;\Ti  with 

utiitiy.  apples,  offers  you  one.     You  thank  him  and  eat 

the  apple  with  extreme  satisfaction.  He  offers  you  another, 
and  still  another;  and  by  this  time  your  want  has  been 
almost  satisfied.  You  have  enjoyed  each  apple,  but  in  a 
less  and  less  degree,  because  every  additional  apple  affords 
less   satisfaction   than   the  preceding  one.     Finally,    after 


Problems  of  Consumption  27 

you  have  eaten  five  or  six  apples,  you  have  no  desire  for 
any  more,  —  so  far  as  you  are  concerned  they  cease  to  pos- 
sess utihty.  In  fact,  if  you  were  to  persist  in  consuming 
apples,  pain  and  distress  would  ultimately  result ;  that  is, 
to  you,  apples  which  a  few  moments  before  possessed  utility 
would  now  possess  disutility. 

On  this  experience,  therefore,  the  economist  bases  his  law 
that,  if  an  economic  good  is  supphed  in  endless  quantity, 
the  point  will  ultimately  be  reached  where  it  ceases  to 
possess  utihty  and,  if  consumed  beyond  that  point,  it  will 
possess  disutihty. 

Principles  governing  Consumption.  —  Wants  are  satisfied 
through  the  consumption  of  economic  goods.  The  impor- 
tance of  consumption,  therefore,  will  depend  upon  the 
number,  character,  and  variety  of  wants.  In  primitive 
times,  when  wants  were  few  and  simple,  the  consumption 
of  the  uncivilized  man  was  limited  to  his  ele-  i^jportance 
mentary  wants  for  food,  shelter,  and  clothing,  ofconsump- 
With  the  progress  of  civilization,  wants  are  con- 
stantly increasing,  and  the  problems  of  consumption,  there- 
fore, become  correspondingly  complex.  The  increase  in 
number  and  variety  of  wants,  which  has  accompanied  ad- 
vancing civilization,  results  in  greater  and  more  varied 
consumption  provided  a  system  has  been  established  which 
simultaneously  increases  production.  The  principles  of 
consumption  must  therefore  play  an  important  part  in  any 
discussion  of  economics. 

Society  is  slowly  learning  that  to  receive  the  highest 
benefit  from  the  consumption  of  wealth,  the  individual 
must  consume  regularly.  Primitive  man,  depending  on 
hunting  and  l"ishing  for  his  livelihood,  starved  one  day 
and  gorged  the  next.     Modern  man,  dcjiending  on  a  well- 


28  Elements  of  Economics 

organized  system  of  industry,  is  fed  and  clothed  from  day 
itsprin-  to  day  and  does  not  spend  one  day  in  misery 
cipies:  ^^^   ^YiQ   next  in  happiness.     In  this  way,   by 

Consumf-  ...  , 

Hon  should  mamtammg  a  constant  rather  than  an  mter- 
be  regular.  mittcnt  supply  of  Consumption  goods,  men  are 
made  more  efficient  producers. 

The  first  step  in  progress  was  to  make  certain  a  steady 
supply  of  consumption  goods :  the  next  step  was  to  render 
that  supply  more  varied.  This  idea  of  variety  in  consump- 
tion may  be  best  seen  by  calling  to  mind  again  one  point  of 
^         ,       difference    between    China    and    America.     The 

Lonsump- 

lion  should  Chinese  have  practically  no  variety  in  their 
consumption  of  food.  Rice  is  their  staple;  and 
their  dependence  upon  this  single  article  of  food  has  two 
distinct  disadvantages.  In  the  first  place,  workers  get  no 
particular  pleasure  out  of  this  monotonous  diet;  and,  in  the 
second  place,  the  nation  starves  if  the  rice  crop  fails. 

America,  on  the  other  hand,  is  not  dependent  on  one 
staple.  The  exclusive  diet  of  rice  or  wheat  has  been  re- 
placed by  a  varied  diet  of  fresh  meat,  eggs,  butter,  sugar, 
canned  vegetables  and  fruits,  bread  and  bread  products, 
and  fresh,  salt,  and  canned  fish.  This  variety  in  consump- 
tion has  a  double  advantage.  It  means,  first  of  all,  that  if 
one  crop  or  one  source  of  food  supply  fails,  the  nation  will 
not  starve.  It  means,  further,  that  this  varied  diet  contains 
food  elements  which  will  give  the  individual  more  pleasure 
in  his  consumption  and  will  therefore  increase  his  welfare. 
Thus,  the  American  workman,  whose  food  consumption  in- 
cludes meat,  vegetables,  fish,  sugar,  bread,  butter,  and  the 
like,  lives  a  more  enjoyable  life  and  is  a  far  more  efficient 
producer  than  the  Chinese  laborer  whose  diet  consists 
solely  of  rice. 


Problems  of  Consumption  29 

With   stability   and   variety   in   consumption   comes  the 
basis   for   economic   welfare,    provided   this   stabiHty   and 
variety  exist  throughout  the  various  classes  in  the  j^^^^^  ^j 
community.     Hence,  in  order  to  determine  the  stahUity 
extent  of  welfare  in  the  United  States,  it  becomes  *"  ""'"^  ^' 
important  to  inquire  what  standards  of  consumption  the 
members  of  American  society  are  able  to  maintain. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  What  are  the  chief  obstacles  which  prevent  the  American  people 
from  living  ''  the  economic  life  "  ? 

2.  If  you  could,  would  you  do  nothing  always  ?     Why  ? 

3.  Do  people  actually  expend  their  incomes  so  as  to  get  the  maxi- 
mum utility,  judged  by  a  standard  they  would  admit  to  be  morally 
sound  ? 

4.  Could  a  nation  better  do  without  money,  roads,  or  food  ? 

5.  What  is  the  chief  advantage  secured  by  varying  consumption  ? 

6.  How  varied  is  your  own  diet  ?  (Test  by  keeping  a  schedule  for 
a  week  or  more.) 

7.  What  advantages  have  followed  the  introduction  of  sugar  as  a 
cheap  article  of  food  ? 

8.  Show  the  benefits  that  will  result  from  an  extensive  use  of 
tropical  fruit  and  vegetables. 

9.  How  will  the  consumption  of  breakfast  foods  affect  the  people 
of  America  ? 

10.  What  is  the  relation  between  varied  consumption  and  produc- 
tion ? 

11.  What  advantage  has  a  community  in  which  consumption  is 
varied  over  a  community  in  which  it  is  unvaried  ? 

12.  Are  our  wants  wholly  under  the  control  of  our  reason  ?  Do  we 
always  desire  those  things  which  are  beneficial  ?  Can  you  give  cases 
where  wants  seem  to  flow  from  the  action  of  habit  ? 

13.  Are  you  able  to  satisfy  all  your  wants?  Does  law  or  social 
custom  prevent  you  in  some  cases  ?  Would  you  have  sufTicicnt  pur- 
chasing power  to  do  so  in  any  case  ? 

14.  Suppose  you  harl  .Sioo  to  spend.     Would  you  spend  all  of  it  at 


30  Elements  of  Economics 

once  ?     What  would  you  buy  ?     Would  you  buy  the  same  things  at 
all  times  and  under  all  circumstances  ? 

15.  If  you  had  $200  to  spend,  would  you  include  among  your  pur- 
chases all  the  things  you  would  have  bought  for  $100  ? 

REFERENCES 

The  Consumption  of  Wealth  —  S.  N.  Patten. 
Introduction  to  Economics  —  H.  R.  Seager. 
Principles  of  Economics  —  E.  R.  A.  Seligman. 
Elements  of  Economics  —  C.  J.  Bullock. 


CIL\PTER   IV 

The  Problem  of  the  Standard  of  Living 

I.  Difficulty  of  the  problem 

1 .  Cost  of  Imng  in  city  and  country  varies  : 
a.  In  regard  to  rent 

h.  In  regard  to  food 

c.  In  regard  to  clothing 

d.  In  regard  to  fuel 

e.  In  regard  to  incidentals 

2.  Cost  of  living  in  different  cities  varies 

II.  The  elements  in  a  standard  of  living 

1.  What  the  elements  are 

2.  Their  relative  importance  as  shown  by  a  New  York 

study : 
a.  Amount  spent  for  rent 
h.  Amount  spent  for  food 

c.  Amount  spent  for  clothing 

d.  Amount  spent  for  fuel  and  transportation 

e.  Amount  spent  for  other  purposes 

3.  The  conclusion 

The  Problem  Difficult.  —  Individual  prosperity  and  indus- 
trial efficiency  are  dependent  on  the  maintenance  of  a 
normal  standard  of  living.  It  is  an  easy  matter  to  say  that 
a  proper  standard  of  living  is  determined  by  the  amount  of 
economic  goods  necessary  to  maintain  the  highest  industrial 
efficiency,  but  a  discussion  of  the  price  and  character  of  these 
goods  as  well  as  of  the  specific  goods  necessary  to  maintain 
efficiency  makes  the  problem  an  involved  one. 

Wages  is  not  an  accurate  measure  of  the  standard  of 

31 


32  Elements  of  Economics 

living,  since  the  value  of  wages  depends  upon  the  amount 
Costofiiv-  oi  economic  goods  which  wages  will  buy.  When 
ing  varies :  prices  are  high,  a  given  wage  will  buy  less  than 
when  prices  are  low.  A  standard  of  living  varies  therefore 
with  the  cost  of  living.  But  the  cost  of  hving  itself  is 
difficult  to  determine  accurately  because  of  differences 
between  city  and  country  conditions. 

First  of  all,  there  is  the  question  of  rent.  In  the  tene- 
ments of  New  York  City  a  man  pays  six  dohars  a  month  for 
innnard  a  siuglc  Toom.  In  many  country  towns  this 
to  rent.  gjx  dollars  a  month  would  secure  a  fairly  comfort- 

able four-  or  five-room  wooden  house.  The  six  dollars 
which  would  provide  bare  necessities  in  the  city  would  se- 
cure comforts  in  the  country. 

The  price  of  food,  the  most  important  item  in  maintaining 
a  proper  standard  of  living,  varies  in  city  and  country  with 
the  character  of  the  commodity.  The  price  of  meat  is  about 
In  regard  the  Same  in  both  places.  On  the  other  hand, 
to  food.  vegetables  are  considerably  lower  in  the  country, 

the  \mce  paid  for  them  being  the  equivalent  of  the  city 
price  with  the  cost  of  freight,  the  charge  of  the  commission 
merchant,  and  the  profits  of  the  retailer  deducted.  How- 
ever, the  prices  of  canned  goods,  bread,  cakes,  and  crackers 
differ  httle  in  city  and  country  districts.  Things  which  are 
produced  in  the  country  are  much  lower  in  price  there  than 
in  the  city ;  while  things  which  are  produced  in  factories 
are  about  the  same  price  in  city  and  country. 

The  cost  of  clothing  would  vary  little  in  city  and  country 
districts  were  it  not  for  the  presence  in  the  city  of  rich  people 
In  regard  who  drcss  extravagantly.  The  standard  of  dress 
to  clothing,  which  they  set  becomes  the  conventional  or 
fashionable  standard,  and  it  must  be  followed  by  all  who 


The  Problem  of  the  Standard  of  Living         2>3 

would  be  "  in  style."     The  result  is  an  expenditure  for 
trumpery  and  cheap  finery  which  is  unknown  in  the  country. 

Another  important  city  item  is  the  expenditure  for  fuel ; 
but  in  the  country  fuel  is  almost  a  negligible  quantity  be- 
cause wood,  which  is  very  generally  burned,  can  /„  regard 
be  easily  and  cheaply  secured.     Hence  the  fuel  "'f'^'^^- 
supply  is  much  more  cheaply  secured  in   the  country  dis- 
tricts and  small  towns  than  it  is  in  larger  towns  and  cities. 

Finally,  the  country  districts  do  not  furnish  so  many 
opportunities  for  spending  money  as  do  the  city  districts. 
There  is  little  carfare  to  pay  and  the  temptation  in  regard  to 
to  buy  in  stores  is  greatly  lessened  by  the  absence  ^"-(^^dentais. 
of  display  advertising  in  store  windows.  Therefore  less 
will  be  spent  in  the  country  for  incidentals. 

Again,  the  cost  of  Kving  varies  in  cities  themselves. 
Individual  items  of  expense  are  much  greater  in  some  cities 
than  in  others.  For  example,  rents  are  much  higher  in 
New  York  than  in  Philadelphia.  While  one  indifferent 
item  may  offset  another,  these  differences  must  "*'®^- 
be  taken  into  account  when  estimating  the  cost  of  living  in 
different  cities.  The  estimation  of  a  standard  of  living  is  a 
problem  of  serious  magnitude. 

The  Elements  in  a  Standard  of  Living.  —  A  standard  of 
Uving  to  accomplish  its  purpose  of  securing  and  maintaining 
efficiency  should  provide  for:    (i)   the  necessaries  of  life, 
including    housing,    food,    clothing,    fuel     and  ^hatthe 
light,  and  transportation;   (2)  recreation,  includ-  elements 
ing   proper   provision    for   health   and   hygiene, 
amusements,  and    books;    (3)  voluntary  subscriptions  for 
insurance,    clubs,     trade    unions,     and     regular    savings; 
(4)  unusual  expenditures  for  medicines,  physicians,  and  the 
like,  as  well  as  expenditures  required  for  household  furniture. 


34  Elements  of  Economics 

Almost  all  the  expenditures  of  a  workingman's  family  are 
made  for  the  necessaries  of  life,  of  which  housing  and  food 
are  by  far  the  most  important  in  a  modern  city.  In  Chapin's 
New  York  study,  which  contains  the  standard  American 
material  on  the  subject,  the  expenditures  for  housing  are 
.        ,         classified   by  incomes  and  nationalities.     Those 

Amount  •' 

spent  for  families  receiving  an  annual  income  of  less  than 
'^^"^'  $700  were  found  to  spend  one  fourth  of  it  for 

rent ;  the  families  having  an  income  between  $700  and 
$1000  spent  one  fifth  for  rent ;  while  those  families  receiv- 
ing more  than  $1000  paid  one  sixth  of  the  total  income  for 
rent.  After  a  careful  analysis  of  the  number  of  rooms  which 
each  family  used,  the  New  York  investigators  decided  that  an 
''  efl&ciency  "  standard  of  housing  was  not  generally  secured 
by  the  famihes  receiving  less  than  $1000  annual  income. 

The  largest  single  factor  in  the  family  budget  is  food  and, 
unlike  rent,  the  expenditure  for  food  is  almost  constant.  In 
the  New  York  famihes,  from  forty  to  forty-five  per  cent  of 
the  income  is  expended  for  this  one  item.  In  the 
famihes  with  incomes  of  less  than  $1000,  from 
$200  to  $350  is  spent  for  food ;  that  is,  from  four  to  seven 
dollars  per  week.  The  analysis  of  the  food  expenditures 
was  very  thorough.  The  family  budgets  were  examined  by 
a  food  specialist,  the  values  of  the  various  foods  consumed 
were  ascertained,  and,  in  the  case  of  each  family,  a  decision 
was  reached  as  to  whether  the  family  was  or  was  not  under- 
fed. In  the  families  included  in  the  New  York  study  under- 
feeding practically  ceased  when  an  income  of  $900  a  year 
was  reached. 

Clothing  was  found  to  constitute  a  surprisingly  small  item 
in  the  budget  of  a  workingman's  family.  The  families 
with  incomes  under  $800  spent  less  than  $100  for  clothing, 


The  Problem  of  the  Standard  of  Living         35 

while  those  with  an  income  of  more  than  $800  spent  from 
$100  to  $150  for  the  same  purpose.  After  a  careful  study 
of  the    problem,   the    New    York    investigators 

1111  1    r        -1       T    •  IK  r  For  clothing. 

concluded  that  a  normal  family  livmg  on  Man- 
hattan Island  could  clothe  itself  for  $105  per  year.  This 
allowed  $33  for  the  man,  $23  for  the  woman,  $12  for  each 
boy,  $15  for  each  girl,  and  $10  for  laundry.  That  this 
expenditure  is  not  excessive  is  shown  by  the  following  hst 
of  articles  designed  to  clothe  a  boy  for  a  year:  Two  hats, 
$.50;  one  overcoat,  $2.50;  one  suit,  $2.50;  one  pair  of 
trousers,  $.50;  two  shirts,  $.50;  summer  underwear,  $.50; 
winter  underwear,  $1.00;  six  pairs  of  stockings,  $.50;  two 
pairs  of  shoes,  $2.00;  repair  of  shoes,  $1.25  ;  mittens,  $.25  ; 
total,  $12.00. 

The  expenditures  for  fuel  and  hght  are  comparatively 
small,  varying  from  three  and  one  half  to  six  per  cent  of  the 
total  family  incomes;    i.e.,  $25  to  $65  annually.     The  re- 
maining item  is  transportation.     In  a  city  like  pg^J^^^land 
New  York,  this  is  an  important  factor.     In  most  transporta- 
of    the    families    reporting    any   transportation 
expenditure,  it  was  found  that  this  item  fell  between  $20 
and  $40  per  year. 

Expenditures  for  recreation  vary  considerably.  In  the 
lower  income  groups  they  are  very  small,  but  they  rise 
rapidly  with  the  increase  of  income.  The  same  thing  is 
true  with  the  voluntary  disbursements  and  the  p^^  ^^^^^ 
extraordinary  expenditures.  For  furniture,  for  P^^rposes. 
example,  the  average  amount  expended  by  the  families 
with  incomes  between  $600  and  $700  was  $6.22  per  year; 
while  even  among  the  families  with  incomes  between  $1000 
and  $1100,  the  average  expenditure  for  this  purpose  was 
only  $12.89. 


36  Elements  of  Econo^nics 

Whatever  may  be  the  ultimate  conclusion  regarding  the 

exact  amount  of  income  necessary  to  maintain  efficiency  in 

any  locality,  the  necessity  of  providing  an  effi- 

Conclusion.        .  1       1        r    i-    •  •  t-.        •!• 

ciency  standard  of  livmg  exists.  Families  — 
men,  women,  and  children  —  require  a  certain  minimum 
of  the  necessaries  of  life.  Such  a  minimum,  whatever  it 
may  cost,  should,  in  the  interest  of  welfare  and  efficiency, 
be  assured  every  member  of  the  community. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  In  your  opinion,   what  is   the   most  fundamental   reason   for 
maintaining  a  proper  standard  of  living  in  a  community  ? 

2.  What  is  the  effect  of  maintaining  a  high  standard  of  living  ? 

3.  Do  economic  wants  increase  more  quickly  than  the  standard  of 
living  ? 

4.  What  would  be  the  effect  upon  standards  if  the  poorest  third  of 
our  city  populations  could  be  moved  on  to  farms  ? 

5.  What  would  be  the  effect  on  the  United  States  of  providing  a 
uniform  minimum  standard  of  living  for  all  ? 

6.  What  is  the  ultimate  effect  on  the  individual  of  living  below  the 
normal  standard  ? 

7.  Why  should  the  community  at  large  be  interested  in  maintaining 
a  high  standard  of  living  ? 

8.  What  is  the  force  most  to  be  relied  on  to  maintain  a  proper 
standard  of  living  ? 

REFERENCES 

The  Standard  of  Living  Among  Workingmen's  Families  —  R.   C. 

Chapin. 
Wage  Earners'  Budgets  —  L.  B.  Moore. 
A  Living  Wage  —  J.  A.  Ryan. 
Social  Adjustment  —  Scott  Nearing. 
Misery  and  Its  Causes  —  E.  T.  Devine. 


CHAPTER  V 
Wages  and  Standards 

I.  The  wage  required  to  maintain  efficiency 

1 .  What  the  wage  should  be : 

a.  In  New  York 

b.  In  Buffalo 

c.  In  Homestead 

d.  The  conclusion 

2.  What  the  wage  really  is  : 

a.  Conclusions  drawn  from  the  table 

b.  A  final  summary 

c.  The  result 

II.  Difficulties  in  measuring  wages 

1 .  Prices  affect  wages 

2.  Real  wages  different  from  money  wages 

3.  Average  wages  used  as  a  basis : 

a.  An  example 

b.  Why  they  are  misleading 

c.  How  the  "  weighted  "  average  is  secured 

4.  Wages  and  prices  : 

a.  Recent  fluctuations  in  both  (1890) 

b.  The  rise  in  prices  : 

(i)  Those  who  suffer  most 
(2)  Causes  of  the  rise  in  prices 

The  Wage  required  to  maintain  Efficiency.  —  Several 
careful  studies  have  been  made  recently  in  an  attempt  to 
determine  exactly  what  amount  will  maintain  the  ^hatthe 
efficiency  of  a  "  normal  "  family  consisting  of  a  wage  should 
man,  a  woman,  and  three  children  under  fourteen 
years  of  age.  These  studies  are  remarkably  uniform  in 
their  conclusions  for  the  various  cities  under  consideration. 

37 


o 


8  Elements  of  Economics 


The  most  satisfactory  American  study  in  the  standard 
of  Kving  was  made  in  1907  and  1908  in  the  city  of  New 
York.  An  analysis  of  the  family  budgets  of  391  work- 
ingmen's  families,  together  with  an  exhaustive  study  of  food 
In  New  values,  housing,  clothing,  and  the  like,  led  the  in- 
Buffaio  and  vestigators  to  conclude  that :  "  An  income  of 
Homestead,  nine  hundred  dollars  probably  permits  the  main- 
tenance of  a  normal  standard,  at  least  so  far  as  the  physical 
man  is  concerned.  .  .  .  Whether  an  income  between  eight 
hundred  dollars  and  nine  hundred  dollars  can  be  made  to 
suffice  is  a  question  to  wliich  our  data  do  not  warrant  a 
dogmatic  answer."  In  the  same  report  appears  an  analysis 
of  one  hundred  workingmen's  families  in  Buffalo,  with  the 
conclusion  that  before  they  are  applied  to  Buffalo,  the  New 
York  figures  should  be  reduced  by  one  hundred  and  fifty 
dollars.  In  Homestead,  a  suburb  of  Pittsburgh,  a  recently 
completed  study  covers  ninety-nine  famihes,  from  whose 
budgets  the  investigation  concludes :  "It  is  not  until  we 
cross  the  twenty-dollar  [a  week]  mark  that  we  feel  that  the 
family  is  well  provided  for  and  needs,  if  provident,  have  no 
fears  for  the  future." 

The  available  authorities  are  therefore  in  practical  agree- 
ment that  an  "  efl5ciency  "  standard  of  living  can  be  main- 
tained in  the  cities  of  the  Middle  States  on  an  annual 
Thecondu-  income  ranging  from  $750  to  $900,  varjdng 
ston.  ^ij-jj  ^j^g  family,  the  nationality,  and  the  city. 

Accepting  these  conclusions,  we  must  next  inquire  how  the 
wages  actually  paid  compare  with  this  "  efficiency  "  stand- 
ard ;  because  the  relation  of  workingmen  to  "  efficiency  " 
standards  is,  in  the  last  analysis,  measured  through  the 
wages  they  receive. 

How  many  men   in  the  United  States  earn  from  $750 


Wages  and  Standards 


39 


to  $900  annually?  In  other  words,  how  many  workmen 
receive  sufficient  wages  to  enable  them  to  rear  three 
children,  —  to  give  them  enough  nourishing  food,  warm 
clothes,    a   decent   house,   an    education  up   to  „,^    ^^ 

'  ^  what  the 

their  fourteenth  year,  and  a  legitimate  amount  wage  really 
of  recreation?     An   answer   to   this  problem  is  '^" 
best  sought  in  the   following   statistical   table  which,   for 
brevity,  covers  only  five  income  groups,  for   each  one  of 
which  the  cumulative  percentages  are  set  down :  — 

CuMULATrv^E  Percentages  of  ]Males  Receiving  Certain  Classi- 
fied Weekly  Earnings,  Compiled  from  Labor  Reports, 
1908-1910 


Massa- 

New 

Bethlehem 

Railroads 

Classihed 
Weekly 
Earnings 

chusetts 

1908 

(21  Years 

Jersey 

1909 

(16  Years 

Kansas 

1909 

(16  Years 

Wisconsin 

1906-7 

(All 

Steel 
Works 
1910 

of  the  U.S. 
1900 
(All 

AND  over) 

AND  over) 

AND  over) 

(All 
Males) 

Males) 

% 

cr 
/o 

% 

% 

% 

% 

Under  $8  .     .     . 

12 

18 

8 

12 

8 

22 

Under  Si  2     .     . 

52 

57 

46 

59 

60 

51 

Under  $15     .     . 

72 

74 

70 

89 

75 

78 

Under  S20     .     . 

92 

91 

91 

98 

92 

92 

$20  and  over 

8 

9 

9 

2 

8 

8 

Total  employed 

350,118 

204,782 

50,720 

128,334 

9184 

1,502,823 

A  study  of  the  above  table  shows  that  half  of  the  adult 
males  working  in  the  industrial  sections  of  the  United  States 
receive  less  than  S600  per  year ;  that  three  quarters  are  paid 
less  than  $750  annually,  and  that  less  than  one  tenth  earn 
$1000  per  year.  These  figures  are  not  accurate,  however, 
since  they  arc  all  gross  figures,  including  unemployment. 


40  Elements  of  Economics 

They  should  be  reduced  by,  perhaps,  twenty  per  cent,  since 
What  the  that  reduction  would  make  all  due  allowance  for 
table  shows,  unemployment  varying  with  the  year,  the  loca- 
tion, and  the  industry.  Making,  therefore,  a  reduction  of 
one  fifth  in  these  gross  earnings,  it  appears  that  half  of  the 
adult  males  in  representative  sections  of  the  United  States 
are  earning  less  than  $500  a  year ;  that  three  quarters  of 
them  are  earning  less  than  $600  annually ;  that  nine  tenths 
are  receiving  less  than  $800  a  year,  while  less  than  one- 
tenth  receive  more  than  that  figure. 

Briefly  summarized,  the  available  wage  data  lead  to  the 
A  final  conclusion  that  the  annual  earnings  (unemploy- 

summary.  ment  of  twenty  per  cent  deducted)  of  adult  males, 
employed  in  sections  east  of  the  Rockies  and  north  of  the 
Mason  and  Dixon  Line,  are  distributed  over  the  wage  scale 
as  follows :  — 

Annual  Earnings  Adult  Males 

Under  $325  ^^ 

Under    500  1 

Under    600  I 

Under    800  rts 

If  we  accept  as  accurate  the  standard  of  living  studies 

which  set  the  "  efficiency  "  minimum  wage  for  a 

man,   wife,   and   three  children  under  fourteen 

years  of  age  at  $750  to  $900  per  year,  it  appears  that  a  very 

large  group  of  American  wage  earners  is  unable  to  support 

itself  on  this  basis  of  efficiency. 

Difficulties  in  Measuring  Wages.  —  Since  wages,  as  meas- 
ured in  terms  of  money,  is  not  an  end  in  itself,  but  merely 
a  means  to  welfare,  it  matters  little  how  much  money  wages 
a  man  actually  receives.     The  really  important  point  is  not 


Wages  and  Standards  41 

how  much  money  he  gets,  but  how  many  goods  he  can  buy. 
Thus,  the  purchasing  power  of  wages  is  the  real  determinant 
of  a  standard  of  Hving. 

Unless  accompanied  by  a  statement  of  prices,  money 
wages  is  not  even  an  approximate  test  of  a  standard  of 
living.  This  is  a  bit  of  knowledge  which  many  an  immigrant 
learns  each  year  from  bitter  contrast  between  prices  in 
Europe  and  prices  in  the  United  States.  He  How  prices 
hears,  to  his  dehght,  that  if  he  leaves  his  fifty-  affect  wages, 
cents-a-day  job  in  central  Europe  and  goes  to  Chicago,  he 
can  easily  earn  $1.50  for  ten  hours  of  work.  The  difference 
in  wages  appeals  strongly  to  him,  so  he  hastens  to  the  New 
World.  But  once  there  he  finds  to  his  dismay  that,  while 
wages  are  three  times  as  high  as  they  were  at  home,  prices 
are  also  three  or  perhaps  four  times  as  high  as  they  were 
in  Europe;  so  that,  instead  of  being  better  off  on  $1.50 
a  day,  he  may  actually  get  less  for  his  $1.50  than  he  did 
for  the  fifty  cents  a  day  in  Europe. 

There  is  thus  a  real  difference  between  money  wages  and 
real  wages.     Money  wages  are  wages  actually  paid  in  dol- 
lars and  cents;  while  real  wages  represent  the  ^ggi^a  gg 
purchasing  power  of  money.     The  discussion  of  and  money 
the  cost  of  living  therefore  centers  about  real  *^^®®' 
wages.     How  many  economic  goods  can  a  man  really  get  in 
exchange   for  his  wage?      The    answer    to    this    question 
reveals  his  standard  of  living. 

In  most  of  the  discussions  on  wages  and  the  cost  of  living 
the  wages  considered  are  average  wages,  just  as  the  prices 
considered  are  average  prices.  But  average  wages  are  not 
really  true  tests  of  wage  conditions.  Let  us  see,  therefore, 
just  what  average  wages  represent.  An  average  is  a  mean 
between  two  or  more  diverse  numbers  or  instances.     This 


42  Elements  of  Economics 

thought  may  be  more  clearly  brought  out  by  an  illustration. 
Two  groups  of  men  are  working,  —  ten  carpenters  at  $3.00 
Average  per  day  and  twenty  laborers  at  $1.50  per  day. 
^^^     '  If  the  carpenter  helped  the  laborer  to  pay  his 

example.  landlord  and  grocer,  an  average  would  be  a  fair 
statement  of  wages.  Nothing  of  the  kind  occurs,  however, 
since  the  laborer  with  his  $1.50  must  meet  all  bills,  while 
the  carpenter  to  meet  like  bills  has  $3.00  per  day.  Thinking 
of  an  "  average  "  wage  of  $2.25  one  naturally  says,  ''  Yes, 
they  are  fairly  well  off."  But  "  they  "  meaning  nobody, 
the  statement  is  absurd  unless  we  know  that,  in  reality,  the 
carpenters  are  comparatively  well  off;  the  laborers,  com- 
paratively badly  off. 

The  average  in  this  case  merely  misleads,  since  neither 
the  carpenter  nor  the  laborer  is  receiving  $2.25  per  day. 
The  average  wage  is  an  abstract  concept,  mathematically 
Why  they  are  correct,  but  Socially  misleading.  It  represents 
misleading,  neither  purchasing  power  nor  the  wage  actually 
paid,  but  a  wage  falling  somewhere  between  the  various 
groups  of  actual  wages. 

In  many  calculations,  average  wages  alone  are  employ- 
able, as  in  the  comparison  of  wages  and  the  cost  of  living ; 
The  but   it   is   possible    to    employ   a    ''  weighted  " 

"  "'"^^'^'^ "    average  and  thus  overcome  at  least  a  part  of  the 

average.  .  '^ 

error  m  the  mathematical  average.  To  secure  a 
weighted  average,  instead  of  adding  $3.00  and  $1.50,  and 
dividing  the  sum  by  two,  the  statistician  takes  into  account 
the  number  of  men  receiving  each  wage,  thus :  — 


10  carpenters  at  S3  =  I30  per  day 
20  laborers  at  $1.50  =  $30  per  day 
30  workers  receive  $60  per  day 


Wages  and  Standards  43 

or  each  worker  receives  a  daily  "  weighted  "  average  of 
$2.00.  The  mathematical  average  is,  in  this  case,  twenty- 
five  cents  per  day  higher  than  the  "  weighted  "  average. 
In  cases  where  average  wages  must  be  used,  the  weighted 
average  is  by  far  the  more  accurate  form. 

Prices  are  paid  by  all,  and  the  average  price  of  a  given 
commodity  is   fairly   representative   of   actual    conditions. 
By  examining  wholesale  price-lists,  it  is  possible  wages  and 
to  determine,  with  a  fair  degree  of  accuracy,  what  P"^^^  '• 
amounts  people  are  forced  to  pay  for  the  commodities  they 
buy. 

In  order  to  make  the  contrast  between  wages  and  prices 
as  effective  as  possible,  several  bureaus  of  labor  publish 
bulletins  contrasting  the  wages  of  labor  and  the  cost  of 
food.  A  study  of  these  bulletins  shows  that  since  1890 
there  has  been  a  very  great  change  in  wages  and  Recent 
prices.  Both  fell  heavily  during  the  financial  fl»<^iuations. 
depression  of  1893-1894,  and  then  both  rose  regularly  until 
1907,  when  there  was  another  sharp  decline  which  has  since 
been  followed  by  a  slight  rise  in  both  prices  and  wages. 

It  is  impossible  to  determine  accurately  whether  prices 
have  risen  more  than  wages  or  wages  more  than  prices 
during  the  last  twenty  years.  A  recent  New  Jersey  report 
would  lead  to  the  conclusion  that  prices  have  risen  more 
rapidly  than  wages.  One  fact  is,  however,  ap-  Theme  in 
parent,  —  wages  have  risen  for  some  of  the  labor-  ^"'"• 
ers;  prices  have  risen  for  all.  An  examination  of  the  United 
States  Bureau  of  Labor  Bulletins  shows  that  in  some  indus- 
tries wages  have  actually  fallen  ;  nevertheless  these  laborers, 
on  their  lower  wages,  must  pay  higher  prices. 

The  situation  is  particularly  severe  among  clerks,  sales- 
people, and  other  salaried  employees  earning  from  $1200 


44  Elements  of  Economics 

to  $3500  per  year.  The  studies  of  wages  and  the  cost  of 
living  include  the  wages  of  wage  earners  only.  Could  like 
statements  be  made  for  the  large  class  of  salaried  em- 
ployees, it  would  probably  be  found  that,  while  salaries 
have  been  practically  stationary,  the  cost  of  the  necessaries 
of  life  has  increased  at  least  fifty  per  cent. 

Numerous  attempts  have  been  made  to  discover  the 
causes  which  underlie  the  rise  in  prices.  The  tariff,  the 
trusts,  increasing  wages,  the  increased  gold  supply,  luxury, 
and  city  Ufe  have  all  been  assigned  as  contributing  factors. 
As  to  which  cause  or  which  combination  of  causes  is  prima- 
rily responsible  for  rising  prices,  there  is  no  general  agreement. 

With  this  chapter  we  close  the  discussion  of  the  problems 
connected  with  the  consumption  of  wealth.  We  shall  now 
turn  our  attention  to  the  problems  of  wealth  production ; 
for,  as  we  have  previously  indicated,  individual  welfare  may 
also  be  measured  in  terms  of  production. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  Should  any  relation  be  maintained  between  wages  and  stand- 
ards ? 

2.  How  should  this  be  done  ? 

3.  After  ascertaining  the  discrepancy  between  wages  and  stand- 
ards in  the  leading  cities,  what  further  steps  must  be  taken  ? 

4.  Do  high  wages  mean  a  high  standard  of  Hving  ? 

5.  Why  is  the  actual  amount  of  the  money  wage  imimportant  ? 

6.  Why  are  "  average  wages  "  inconclusive  ? 

7.  Granted  that  an  adjustment  can  be  effected  between  wages  and 
prices,  why  is  this  desirable  ? 

REFERENCES 

Bulletins  —  United  States  Bureau  of  Labor. 
Wages  in  the  United  States  —  Scott  Nearing. 
1 8th  Annual  Report  — United  States  Bureau  of  Labor. 
The  Pittsburg  Survey  —  P.  U.  Kellogg,  Editor. 


PART   III 
THE   PRODUCTION  OF  WEALTH 

CHAPTER  VI 

Natural  Resources  of  the  United  States 

I.  The  factors  in  production : 

1.  Meaning  of  production 

2.  Requisites  of  production 

II.  The  part  played  by  natural  resources: 

1.  In  ancient  times 

2.  In  modern  civilizations 

3.  In  Cliina  and  the  United  States" 

III.  The  "  land  "  or  natural  resources  of  the  United  States 

1.  Importance  of  "  land  " : 

a.  Its  meaning 

b.  How  it  determines  activities 

c.  How  it  aids  man 

d.  How  it  favors  the  United  States : 
(i)  In  extent  and  climate 

(2)  Importance  of  climate 

2.  The  minerals  of  the  United  States  : 

a.  Their  importance 

b.  Coal : 

(i)  Our  supply 

(2)  Our  consumption 

(3)  Kinds  and  uses 

c.  Petroleum  and  gas  : 
(i)  Our  supply 

(2)  A  problem  of  the  future 
45 


46  Elements  of  Economics 

d.  Iron  and  copper 

e.  Other  minerals 

/.   Necessity  for  conservation 
3.  The  conclusion  ' 

The  Factors  in  Production.  —  Production  is  the  process 
of  creating  or  increasing  utihties  in  economic  goods,  that 
is,  of  creating  want-satisfying  qualities  in  the  raw  materials 
of  nature  which  supply  the  basis  of  all  economic  goods. 
Meaning  of  Of  course,  according  to  the  theory  of  the  inde- 
production.  structibility  of  matter,  man  can  neither  create 
nor  destroy  a  single  unit  of  matter.  However,  it  is  per- 
fectly possible  for  him  to  change  the  form  of  this  matter  so 
that  it  will  serve  some  definite  purpose.  This  process, 
taking  place  everywhere  and  at  all  times,  results  in  what 
we  have  already  described  as  the  creation  of  form  utilities 
in  economic  goods.  Man's  efforts  in  the  field  of  production 
consist,  therefore,  of  all  those  activities  which  lead  to  the 
creation  of  utilities  of  one  kind  or  another. 

Production,  which  furnishes  the  material  basis  of  wel- 
fare, depends  upon  natural  resources,  labor,  and  capital, 
_     .  ..        Natural  resources  are  gifts  of  nature,  limited  in 

Requisites  °  ' 

of  produc-  extent ;  labor  is  industrial  effort ;  capital  is  an 
economic  good  used  to  assist  in  production. 
Every  modern  productive  operation  requires  these  three 
factors.  Land  furnishes  the  raw  material;  labor,  the  effort; 
and  capital,  the  tools  which  are  to  assist  in  increasing  the 
want-satisfying  power  of  economic  goods.  Thus,  specifi- 
cally, the  tree  standing  on  the  hillside  is  a  natural  resource. 
A  man  approaches  the  tree  and  begins  chopping  it  with 
an  ax.  The  man  is  labor ;  the  ax  is  capital.  The  felling 
of  the  tree,  which  has  brought  it  one  step  toward  its  final 
form  of  chairs,  let  us  say,  is  one  act  in  an  operation  which 


Natural  Resources  of  the  United  States  47 

will  enable  the  wood  to  satisfy  human  wants.     Therefore 
the  act  is  productive. 

The  Part  played  by  Natural  Resources.  —  Natural  re- 
sources may  not  make  a  civilization,  but  without  them 
civilization  would  be  impossible.  A  study  of  the  great 
civilizations  of  the  past  shows  that  without  exception  the 
basis  of  their  success  was  an  adequate  supply  of  natural 
resources.  Babylonian,  Egyptian,  Carthaginian,  in  ancient 
Roman,  and  Chinese  civilizations  were  all  estab-  **™^^- 
hshed  in  fertile  valleys  or  with  a  nucleus  of  fertile  land.  In 
an  age  when  agricultural  land  was  almost  the  only  resource 
rehed  upon,  civilizations  were  necessarily  founded  in  fertile 
agricultural  districts.  This  truth  was  clearly  recognized 
by  the  preacher  who  pubhcly  gave  thanks  to  Heaven  for 
making  the  great  rivers  flow  beside  the  big  cities.  Although 
his  economics  was  certainly  defective,  he  was  grasping  at  an 
important  principle. 

Natural  resources  are  more  important  to-day  than  they 
were  in  any  historic  period,  because  modern  civilization  is 
founded  on  mineral  as  well  as  on  agricultural  resources. 
What,  then,  are  the  present  resources  of  the  world  ?  Where 
do  we  find  the  possibihties  for  the  development  of  great 
modern  civihzations  ?  The  retarded  development  of  the 
African  continent  is  the  outcome  of  its  vast  desert,  great 
heat,  regular  coast  line,  and  few  navigable  rivers.  South 
America  has  its  Amazon  basin,  but  the  tropical  location 
and  dense  vegetable  growth  make  the  region  at  present  of 
little  real  agricultural  value ;  while  the  southern  portions 
of  the  continent  are  too  restricted  in  extent  in  modem 
to  furnish  the  basis  for  an  extensive  civiliza-  "vihzations. 
tion.  In  Europe,  the  fertile  basin  of  the  Danube  alone 
provides  a  really  adequate  physical  background   for   this 


48  Elements  of  Economics 

purpose.  Australia  is  in  parts  far  too  barren  and  the  sec- 
tions which  are  usable  are  not  sufficient  in  size  to  permit 
the  establishment  of  a  world  power.  Three  other  districts 
provide  a  basis  in  natural  resources  for  a  great  world 
civilization.  The  first  is  India,  whose  semitropical  climate 
in  part  mihtates  against  its  success  as  the  home  of  a  domi- 
nant civilization;  the  second  is  China;  the  third  is  the 
United  States. 

These  last  two  centers  afford  perhaps  the  largest  resource 
possibilities  for  civihzation  in  the  world.  The  Yang-tse- 
Kiang  Valley  of  China,  fertile  and  wide  in  extent,  provides 
means  of  transportation  and  rich  agricultural  land,  while  the 
timber-covered  mountains  of  the  north  are  rich  in  mineral 
In  Chin  nd  wealth.  The  United  States,  with  its  Mississippi 
United  Valley,  its  variety  of  climate,  its  mineral  and 

*  ^^'  vegetable  wealth,  its  great  rivers,  and  its  broken 

coast  line  has  already  spelled  opportunity  to  millions  of 
home  seekers,  and  it  promises  in  the  future  even  greater 
development. 

Natural  Resources  of  United  States.  —  In  economic  terms 
the  word  "  land  "  means  not  only  fields  and  meadows,  but 
also  rivers,  lakes,  bays,  mines  of  coal  and  metals,  and  oil. 
Importance  ^^h,  forests,  and  wild  game.  In  short,  "  land  " 
of "  land " :  includes  all  the  gifts  of  nature  (other  than  air 
7^5  meaning.  ^^^  suuHght)  which  cxist  in  their  present  form 
without  the  expenditure  of  any  human  labor.  Most  of  this 
wealth  is  converted  by  mining,  chopping,  and  similar 
operations  into  raw  materials  upon  which  men  work  to 
secure  their  Hvelihood. 

The  character  of  natural  resources  frequently  determines 
the  lines  along  which  people  will  direct  their  energies.  Could 
Columbus,  when  he  first  reached  American  shores,  have  seen 


Natural  Resources  of  the  United  States  49 

the  vast  continent  with  all  its  latent  possibiKties,  he  might 
easily  have  predicted  many  of  the  transformations  which 
have  shice  taken  place.     Along  the  barren  New   ^^^^^^ 
England  coast  with  its  sharp,  forested  hills,  thin  deurmines 
soil,  rivers,  creeks,  and  bays,  he  would  have  ob- 
served the  possibihty  of  developing  lumbering,  shipbuilding, 
fisheries,  commerce,  and  manufactures.     In   Pennsylvania 
he  would  have  seen  that  the  pioneer  would  eventually  em- 
ploy coal,  iron,  and  oil,  and  from  them  construct  the  new 
industry.     Again,  could  he  have  traveled  over  the  fertile 
valleys  of  the  South  with  its  congenial  climate,  he  would 
readily  have  foretold  that  here  was  a  basis  for  extended 
agricultural  development. 

Natural  resources  assist  in  the  development  of  civiliza- 
tion chiefly  in  four  ways:    (i)    soil    and    chmate    furnish 
the  basis  for  agricultural  development;   (2)  min-    Nature  aids 
eral    resources    furnish    the   basis   of   industry;  '"'"'■ 
(3)  forests  provide  wood  and  conserve  rainfall ;    (4)  water 
resources  furnish  transportation  and  power. 

Nature  has  been  free  in  her  gifts  to  the  United  States,  but 
perhaps  nowhere  more  so  than  in  the  wide  range  of  cHmatic 
and  agricultural  conditions  which  she  has  afforded.     The 
fertility  of  the  soil  has  already  been  pointed  out.     The  land, 
stretching  fifteen  hundred  miles  north  and  south,  makes 
possible  a  wide  range  of  climate,  further  diversified  by  alti- 
tudes ranging  from  sea  level  to  elevations  of  several  thou- 
sand feet.    The  most  southern  part  is  parallel  with    Nature 
the    great    Sahara,    while    the    northern    Hmits,    ^]"Ji,lj, 
exclusive  of  Alaska,  are  in  the  latitude  of  Ger-  states. 
many.     Most  parts  of  this  vast  area,  about    the   size   of 
Europe,  will  support  a  variety  of  crops.     Even  where  the 
amount  of  rainfall  is  inadequate,  natural  obstacles  may  often 


50  Elements  of  Economics 

be  overcome  by  irrigation.  If  varied  climate  is  an  aid  to 
varied  agriculture,  there  is  no  other  section  of  the  world 
in  which  a  more  efifective  combination  of  climatic  and 
agricultural  possibilities  exists. 

Climate  is  a  basic  resource  which  cannot  be  destroyed  or 
materially  altered  by  human  wastefulness.  Modern  world 
powers  have  their  homes  in  the  temperate  zone ;  and  it  is 
fair  to  assume  that,  so  long  as  the  present  forms  of  civiliza- 
tion prevail,  cold,  invigorating  winters  with  warm  short 
summers  will  combine  to  produce  the  greatest  vitality  and 
the  most  enduring  energy.  Since  it  is  upon  vitality  and 
energy  that  civilization  largely  depends,  the  climatic  loca- 
tion of  the  United  States  is  most  favorable. 

If,  now,  we  look  under  the  surface  of  the  earth,  we  shall 
find  that  nature  has  endowed  the  United  States  with  rich 
mineral  deposits.  This  kind  of  resource  has  always  been 
of  value  to  mankind,  but  it  is  only  with  the  a'dvent  of  mod- 
ern industry  that  it  begins  to  assume  its  greatest  importance. 
In  primitive  civilizations,  stone,  bronze,  iron,  tin,  zinc. 
Minerals  gold,  silver,  and  other  minerals  were  used  for  orna- 
states^^*^  ments,  for  weapons,  and  for  similar  purposes.  In 
Their  im-  advanced  civilizations,  however,  minerals  deter- 
poriance.  ^linc  largely  the  direction  of  national  progress 
and  the  extent  of  national  prosperity. 

For  convenience  of  discussion,  minerals  may  be  divided 
into  two  groups:  fuels  and  ores.  Of  the  fuels,  coal  is 
by  far  the  most  important,  As  a  factor  in  promoting  pros- 
perity, it  is  second  to  none  of  the  minerals  in  its  threefold 
function  of  providing  heat,  light,  and  power.  One  hundred 
years  ago  the  nation  had  a  supply  of  coal  paral- 
leled only  by  that  of  China.  To-day,  however, 
authorities  say  that  at  our  present  rate  of  increase  in  con- 


Natural  Resources  of  the  United  States  51 

sumption  the  available  supply  of  anthracite  coal  will  be 
exhausted  in  about  forty  years  and  the  available  beds 
of  high-class  bituminous  coal  in  about  one  hundred  and 
twenty-five  years. 

The  increased  use  of  coal  has  been  phenomenal.  From 
1816  to  1825  there  were  mined  331,356  tons;  from  1856  to 
1865  there  were  mined  i73,795,oc»o  tons;  while  from  1896 
to  1905  the  amount  mined  had  increased  to  2,832,599,000 
tons.  So  far  as  present  indications  are  concerned,  this 
consumption  will  increase  in  the  future,  subject  only  to  the 
increasing  cost  of  production.  It  will  thus  be  seen  that  in 
no  other  field  is  conservation  of  more  vital  importance. 

Coal  exists  in  three  forms:  anthracite,  bituminous,  and 
lignite.  Anthracite  coal  contains  the  highest  percentage  of 
carbon  and  is  the  most  valuable  as  fuel.  The  available 
fields  of  anthracite,  located  in  Pennsylvania,  are  being  rap- 
idly exhausted.  Bituminous  coal,  which  contains  less  carbon 
and  is  less  desirable  for  domestic  consumption,  can  be  used 
for  almost  all  commercial  purposes.  Furthermore,  it 
exists  in  nearly  all  parts  of  the  country.  The  third  form  of 
coal,  known  as  lignite,  consists  of  vegetable  matter 
which  has  undergone  chemical  change  and  is  much  less 
valuable  commercially.  Vast  fields  of  this  lignite  have 
been  found  in  the  Northwest.  If  its  use  can  be  made  com- 
mercially profitable,  it  may  be  the  coal  of  the  future. 

The  other  mineral  fuels,  petroleum  and  natural  gas,  which 
have  been  discovered  in  connection  with  most  of  the  coal 
fields,  are  being  rapidly  exhausted.  Already  abundant 
supplies  in  Pennsylvania  have  been  depleted.  Ohio,  In- 
diana, Illinois,  and  West  Virginia  are  failing  to  Pciroicum 
increase  their  supply;  and  the  time  may  soon  """^  s"^- 
come,  perhaps  within  a  quarter  of  a  century,  when  the 


52  Elements  of  Economics 

better  forms  of  petroleum  and  natural  gas  will  be  commer- 
cially unusable  because  of  their  scarcity  and  high  price. 
In  the  Southwest,  many  new  forms  of  petroleum  have  been 
discovered  which  may,  with  the  advance  of  chemistry,  re- 
place the  better  grades  now  in  use. 

This  question  of  the  rapid  diminution  of  the  fuel  supply 
presents  us  with  a  serious  problem.  When  men  first  lived 
in  the  temperate  zone,  they  depended  upon  wood  and  peat 
for  fuel.  Gradually,  coal  and  gas  replaced  the  more  primi- 
tive forms  of  fuel.  With  the  exhaustion  of  these  fuels,  the 
temperate  dwellers  are  face  to  face  with  the  problem  of 
keeping  warm  in  winter".  Without  some  form  of  artificial 
heat,  life  in  the  temperate  zone  is  impossible.  What,  then, 
shall  civilization  do?  Furthermore,  since  modern  industry 
is  dependent  upon  power,  mechanically  produced,  the  future 
must  discover  some  substitute  for  the  rapidly  vanishing 
mineral  fuels.  Though  the  immediate  future  is  by  no  means 
certain,  water  power  may  ultimately  prove  an  adequate 
substitute. 

Among  the  mineral  ores,  iron  and  copper  are  by  far  the 
most  important,  and  the  apparent  supply  of  these  minerals 
is  far  larger  than  the  available  supply  of  coal.  Originally, 
bog  ore  was  taken  from  the  lowlands  of  New  Jersey  and  Vir- 
ginia and  converted  into  iron  and  steel  products.  This  bog 
Iron  and  Ore  industry  was  then  displaced  by  the  ore  mines 
copper.  Qf  Pennsylvania,  which,  in  turn,  have  been  sup- 

planted by  the  ore  fields  of  the  Lake  regions.  In  these 
latter  fields,  the  ore  lies  on  the  surface  and  is  frequently 
shoveled  by  means  of  steam  power  into  cars  in  exactly  the 
same  way  that  a  gravel  bank  is  removed. 

Gold,  silver,  tin,  lead,  zinc,  cement,  brick  clay,  and  stone 
are  also  produced  in  considerable  quantities  throughout  the 


Natural  Resources  oj  the  United  States  53 

United    States.     While    less    important    than    iron,    they 
nevertheless  play  a  leading  part  in  determining  other  miner- 
the  progress  of  an  industrial  civilization.     Espe-  '^^^• 
daily  is  this  true  of  cement,  brick  clay,  and  stone,  all  of 
which  are  particularly  valuable  in  structural  operations. 

These  mineral  ores  together  with  the  mineral  fuels  con- 
stitute the  most  exhaustible  form  of  natural  resources.  A 
forest  which  is  burned  away  may  be  replanted  and  replaced, 
but  each  ton  of  coal  or  silver  ore  which  is  mined  is  irre- 
placeable. It  has  disappeared  and,  although  some  substi- 
tute for  it  may  be  found,  the  coal  or  the  silver  itself  will 
never,  at  least  in  historic  times,  be  replaced,  j^^^^^^^y 
Too  much  emphasis  therefore  cannot  be  laid  forconserva- 
upon  the  necessity  for  conserving  minerals. 
When  coal  is  mined,  all  of  the  coal  in  the  mine  should  be 
removed.  The  policy  frequently  followed  of  removing 
the  easily  mined  coal  and  then  permitting  the  mine  to 
fall  in,  thus  forever  sealing  up  millions  of  tons  of  less  de- 
sirable fuel,  is  disastrous.  Mineral  resources  are  at  the 
basis  of  every  modern  industrial  society,  and  the  welfare  of 
both  industry  and  society  demands  conservation. 

We  have  seen,  from  this  brief  review  of  our  natural  re- 
sources, that,  so  far  as  they  are  concerned,  nature  has  amply 
endowed  the  United  States  with  the  basis  of  The  conciu- 
progress  and  prosperity.  Her  great  extent  of  ^'°°- 
territory,  her  fertility  of  soil,  her  variety  of  climate,  her 
great  mineral  wealth  still  capable  of  conservation,  all  lead 
us  to  this  conclusion. 


54  Elements  of  Economics 

TOPICS  FOR   CLASS  DISCUSSION 

1.  What  is  meant  by  the  "  economic  interpretation  of  history  "  ? 

2.  What  physical  reasons  account  for  the  greatness  of  England  ?  Of 
the  United  States  ? 

3.  Has  rainfall  any  relation  to  the  density  of  population? 

4.  What  relation  exists  between  the  shape  and  location  of  land 
masses  of  the  earth  and  man's  development  ? 

5.  Explain  the  relation  between  climate  and  efficiency. 

6.  Do  the  natural  resources  influence  the  development  of  industries 
in  a  country  ?  How  have  they  affected  the  industries  of  the  United 
States  ? 

7.  What  are  the  chief  natural  resources  of  the  United  States  ?  In 
respect  of  what  resources  is  the  United  States  preeminent  ? 

8.  Of  what  use  is  land  to  the  lumberman  ?  to  the  manufacturer  ? 
to  the  shopkeeper  ?  to  the  traveling  salesman  ?  to  the  fisherman  ?  to 
the  aviator  ? 

9.  Why  are  iron  and  coal  called  the  foundation  stones  of  industry  ? 
10.  Why  does  the  Steel  Trust  aim  to  secure  possession  of  a  large 

supply  of  iron  ore  and  coal  ? 

REFERENCES 

Conservation  of  Natural  Resources  —  C.  R.  Van  Hise. 

Conference  of  Governors  —  Proceedings,  1908. 

Annals  American  Academy  of  Political  and  Social  Science  —  May,  1909. 

Economic  History  of  the  United  States  —  E.  L.  Bogart. 

Reports  of  the  National  Conservation  Commission. 

Nature  and  Man  in  America  —  N.  S.  Shaler. 


CHAPTER  VII 
Land  Reclamation 

I.  Reclamation  by  means  of  irrigation 

1.  How  accomplished 

2.  First  projects : 

a.  Work  of  the  Pueblos 
h.  Work  of  the  Mormons 

c.  Operations  in  California 

d.  Result  of  the  Horace  Greeley  project 

3.  Recent  development : 

a.  Extent  and  value  of  irrigated  lands  (1900) 

b.  The  act  of  1902  : 

(i)  What  it  provides  for 

(2)  How  expense  is  borne 

(3)  Future  possibilities  of  irrigation 

(4)  The  work  recently  done 

4.  Advantages  of  irrigation. 

II.  Reclamation  by  means  of  drainage 

1.  How  carried  on 

2.  Our  swamp  lands  : 

a.  Their  extent  and  character 

b.  The  proposed  work 

c.  The  Florida  Everglades 

d.  The  Dismal  Swamp 

e.  Other  swamp  lands 

3.  The  problem  before  us 

Agricultural  land  is  among  the  foremost  assets  which  a 
nation  can  possess.  Hence,  any  agencies  which  tend  to 
render  it  less  valuable  should  be  effectively  counteracted, 
while  those  measures  which  will  insure  its  fertility  should 
receive    hearty    public    support.     There    are    really    three 

SS 


56  Elements  of  Economics 

forms  of  land  reclamation :  (i)  the  reclamation  of  abandoned 
farm  land  by  restoring  its  fertility  ;  (2)  reclamation  through 
irrigation ;  and  (3)  reclamation  by  drainage.  Since,  how- 
ever, the  problem  of  reclaiming  abandoned  land  will  be 
considered  in  connection  with  the  subject  of  American  agri- 
culture, the  present  chapter  will  be  devoted  to  a  discussion 
of  the  problems  of  irrigation  and  drainage. 

Reclamation  by  Means  of  Irrigation.  —  Any  stream  or 
body  of  water  which  is  properly  situated  may  be  used  for 
Howaccom-  irrigating  land.  In  some  cases  the  water  for 
piished.  irrigation  is  pumped  from  artesian  wells.  Wher- 
ever there  is  a  shortage  of  rainfall,  irrigation  is  possible, 
provided  there  is  an  adequate  supply  of  water  available. 

The  first  irrigation  in  America  was  undertaken  by  the 
Pueblo  Indians  and  the  Cliff  Dwellers  who  lived  in  New 
Mexico  and  Arizona.  While  their  methods  were  of  the 
crudest,  their  work  was  of  such  a  substantial  character 
First  proj-  that  farmers  still  use  some  of  their  irrigation 
®^*^=  ditches.      Scientific     irrigation     replaced    these 

^Pueblo'! and  crudcr  mcthods  when  the  Mormons  under  their 
Mormons.  great  orgauizcr,  Brigham  Young,  began  their 
conquest  of  the  Utah  desert.  Starting  just  before  the 
middle  of  the  nineteenth  century,  the  irrigation  work  of  the 
Mormons  has  spread  until  it  covers  tracts  in  Utah,  Wyoming, 
Idaho,  and  Arizona. 

A  further  step  in  the  development  of  irrigation  was  made 
during  the  gold  rush  to  California.  The  miners  built 
sluices  to  carry  water  for  their  mining.  Sometimes,  when 
operations  thcsc  sluiccs  passed  through  fertile  land,  they 
in  Caiifor-  were  tapped  either  by  the  miners  or  by  the 
*^*'^'  farmers.     In  this  way,  the  ultimate  value  of  irri- 

gation was  conclusively  demonstrated  and  the  foundation 


Land  Reclamation  57 

laid  for  the  irrigation  systems  which  have  helped  to  make 
Cahfornia  one  of  the  garden  spots  of  the  world. 

The  Horace  Greeley  Irrigation  Colony,  named  after  the 
man  who  was  most  interested  in  promoting  it,    ^     ,    , 

,       ,      ,  Result  of 

was  started  in  1870  and  furmshed  the  nucleus  Horace 
of  the  irrigation  boom  of  the  eighties.     During  Greeley 
this    boom    hundreds  of    miles    of    canals  were 
planned  and  built,  the  work  involving  miUions  of  dollars. 

Since  1870  the  growth  of  irrigation  in  the  West  has  been 
rapid.  In  that  year  there  were  20,000  acres  irrigated ;  by 
1880  the  number  of  acres  had  increased  to   1,500,000;    in 

1889,    to    3,631,000;    and    in    1900,   to    7,539,000.    Recent 

Of  this  irrigated  land,  eighty  per  cent  was  de-  ^^°'^^^'- 

.  .   .  .  J   -  .  i.     Extent  and 

voted  to  the  raismg  of  crops  and  twenty  per  cent  ^,j.,^g  ,„ 
to  pasture  land.     While  the  total  cost  of  provid-   1900. 
ing  the  irrigation  for  this  seven  and  a  half  milHon  acres  was 
$67,770,000,  the  value  of  the  crops  in  1900  was  $86,860,000, 
or  a  return  in  one  year  of  about  thirty  per  cent  more  than 
the  total  cost  of  irrigation. 

The  greatest  real  gains,  however,  have  been  made  since 
the  passage  of  the  National  Reclamation  Act  of  1902, 
which  provides  for  the  construction  of  irrigation  works 
under  the  direction  of  the  Secretary  of  the  Interior.  Such 
works  are  to  conform  to  the  state  laws  and  to  be 

.   1      ,         ,  ,.   .  Act  of  ig02. 

developed  in  accordance  with  local  conditions. 
In  order  to  prevent  the  possibility  of  the  concentration  of 
the  irrigated  land  in  the  hands  of  a  few  individuals,  hold- 
ings under  the  Act  are  limited  to  160  acres  for  any  one  per- 
son. 

Under  this  Act  of  1902  the  expense  of  the  construction 
and  improvement  of  an  irrigation  system  must  be  met  from 
the  sale  of  pubhc  land.     In  this  way  the  work  was  started. 


58  Elements  of  Economics 

The  settlers  who  take  up  irrigated  lands  are  required  to  pay 
to  the  government,  in  ten  equal  yearly  installments,  the 
cost  of  irrigation ;  so  that  at  the  end  of  ten  years  the  gov- 
ernment has  returned  to  it  an  amount  of  money  equal  to  the 
amount  spent  the  previous  decade  on  the  irrigation  system. 
By  this  means,  every  ten  years  it  is  possible  to  double  the 
amount  of  irrigation  work  undertaken.  In  order  to  insure 
a  democratic  method  of  administration,  the  irrigation  plant 
is  turned  over  to  the  community  as  soon  as  it  has  been  paid 
for.  Thus  the  responsibility  for  the  successful  management 
of  the  system  rests  on  the  local  community  rather  than  on 
the  authorities  at  Washington. 

In  the  aggregate,  the  seven  and  a  half  million  acres  of 
irrigated  land  sounds  like  a  great  amount ;  but  when  com- 
pared with  the  possibihties  of  developing  systems  of  irriga- 
tion it  is  only  a  small  beginning.  There  are  approximately 
seventy  milhon  acres  of  arid  or  nearly  arid  land  which  may 
still  be  irrigated.  The  work  already  done  therefore  covers 
about  one  ninth  of  the  irrigable  land  of  the  country. 

Since  the  passage  of  the  National  Reclamation  Act  of 
1902,  the  government  has  undertaken  the  construction  of 
irrigation  projects  which  will  irrigate  about  five  million  acres 
of  land,  or  an  area  equal  to  the  present  total  acreage  of  crops 
in  Connecticut,  Massachusetts,  New  Hampshire,  and  Florida. 

An  Eastern  man  who  recently  visited  some  of  the  Western 
irrigated  land  was  asked  on  his  return  what  he  thought  of 
the  Eastern  agriculture  as  compared  with  that  of  the  West. 
Advantages  "  Oh,"  said  he,  "  it  is  a  poor  substitute  for 
of  irrigation,  irrigation."  Continuous  sunshine  and  a  suffi- 
cient water  supply,  furnished  when  wanted  and  in  exactly 
the  right  quantities,  form  a  sharp  contrast  with  the  fickle 
climate  of  the  East, 


Land  Reclamation  59 

Reclamation  by  Means  of  Drainage.  —  The  reclamation 
of  land  by  drainage,  which  constitutes  a  main  feature  of 
the  Act  of  1902,  is  in  no  sense  less  important  than  How  carried 
the  work  of  irrigation.  Eight  million  acres  of  land  °°- 
which  have  been  drained  up  to  the  present  time  have  been 
reclaimed  through  private  or  State  initiative.  The  national 
government  has  done  practically  nothing. 

In  the  United  States  there  are  over  sixty  million  acres  of 
swamp    or   overflowed    lands.     The   notable    thing    about 
swamp  land  is  that  it  is  frequently  of  very  high  quality. 
Take,  for  example,  the  swamp  lands  along  the  Mississippi. 
They  consist  of  rich,  deep  soil  that  has  been  de-  Swamp 
posited  by  the  river  during  ages.     This  soil  is   £°^^„;^„^ 
formed  of  the  finest  silt,  the  scourings  of  many  character. 
different  kinds  of  rocks  carried  down  from  the  head  waters 
of  the  Mississippi  and  its  tributaries.     When,  in  contrast 
to  this,  one  considers  that  in  certain  sections  of  the  country 
farmers  are  attempting  to  raise  crops  on  poor  soil  eight  or 
ten  inches  in  depth,  it  will  readily  be  seen  that  the  swamp 
land  when  drained  will  present  opportunities  far  superior 
to  those  now  offered  by  the  average  farm  land. 

At  the  session  of  1 905-1 906,  Congress  appropriated 
$15,000  for  the  purpose  of  surveying  the  swamp  lands  on  the 
ceded  Chippewa  Indian  reservations  in  Minnesota.  The 
report  on  the  survey  shows  that  it  is  possible  to  drain 
267,000  acres  of  land  and  to  improve  135,000  The  proposed 
additional  acres.  The  total  cost  of  this  work  is  ^'"■^• 
estimated  at  slightly  over  $1,000,000,  while  the  cost  per 
acre  will  vary  from  $1.62  to  $3.23.  Since  this  is  a  region 
in  which  drained  lands  are  worth  from  $12  to  $15  per 
acre,  the  government  can  readily  afford  to  invest  in  the 
project. 


6o  Elements  of  Economics 

Perhaps  the  two  best  known  swamps  are  the  Florida 
Everglades  and  the  Dismal  Swamp  of  Virginia.  The  Ever- 
glades is  a  swamp  during  the  wet  season  only  and  even  then 
there  are  stretches  of  prairie.  These,  however,  are  rendered 
The  Florida  inaccessible  by  the  water  runs.  Some  private 
Everglades,  attempts  have  been  made  to  drain  the  Ever- 
glades, and  these  have  been  singularly  successful.  The  soil, 
consisting  of  silt  and  decayed  vegetable  matter,  ranges 
from  three  to  fifteen  feet  in  depth  and  is  remarkably  rich. 
The  Everglades  cover  more  than  three  million  and  a  half 
acres,  a  large  portion  of  which  is  drainable  at  a  very 
reasonable  expense. 

The  Dismal  Swamp  is  covered  by  patches  of  water  which 
The  Dismal  are  seldom  more  than  two  or  three  feet  in  depth. 
Swamp.  Lji^g  |-]^g  Everglades,  the  Dismal  Swamp  presents 
no  serious  engineering  difficulties.  It  is  merely  a  big  proj- 
ect which  must  be  handled  on  a  large  scale. 

In  Louisiana  near  New  Orleans,  in  Minnesota,  in  North 
Dakota,  in  the  Red  River  Valley  in  Oklahoma,  and  in 
parts  of  California,  considerable  draining  has  been  pri- 
other  swamp  vatcly  Undertaken  and  has  met  with  great  suc- 
lands.  (^ggg      ^5    jj-^    ^]^g    gg^gg    q[   irrigation,    however, 

reclamation  projects  must  be  undertaken  on  a  scale  which  is 
too  vast  for  individual  enterprise  and  which  can  be  most 
justly  and  equitably  administered  by  a  government  agency. 
There  are  over  70,000,000  acres  of  land  available  for  cul- 
tivation and  wonderfully  rich  in  productive  power  if  only 
The  problem  water  can  be  supplied  to  them  in  sufficient  quan- 
beforeus.  titles.  On  the  other  hand,  there  are  another 
60,000,000  acres  which  will  become  wonderfully  productive 
if  they  can  be  properly  drained.  The  problem  of  supplying 
the  water  in  one  case  and  removing  it  in  the  other  is  intri- 


Land  Reclamation  6i 

cate,  demanding  careful  study,  highly  specialized  mechani- 
cal appliances,  and  vast  outlays  of  capital.  Such  outlays 
can  best  be  made  by  the  federal  government. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  does  irrigation  show  us  in  regard  to  man's  control  over  his 
environment  ? 

2.  Is  the  government  interfering  with  a  "  divine  plan  "  when  it 
irrigates  barren  land  ? 

3.  In  what  sense  is  Eastern  agriculture  "a  poor  substitute  for  ir- 
rigation "  ? 

4.  Why  was  irrigation  not  taken  up  by  the  government  earlier  in 
the  history  of  the  country  ? 

5.  What  are  the  advantages  of  irrigation  ? 

6.  Is  it  better  to  irrigate  the  land  of  the  United  States  or  to  go  over 
into  Canada  and  take  up  the  "  free  land  "  ? 

7.  Why  are  swamps  so  rich  ? 

8.  Why  are  they  not  more  extensively  drained  and  used  ? 

9.  On  what  grounds  can  the  national  government  justify  its  activi- 
ties in  the  reclamation  of  land  ? 

REFERENCES 

Conservation  of  Natural  Resources  —  C.  R.  Van  Hise. 

Annals  American  Academy  of  Political  and  Social  Science  —  May, 

1909. 
Census  of  1900  —  "  Irrigation." 
Conference  of  Governors  —  Proceedings,  1908. 
National  Geographic  Magazine  —  1902  to  date. 
Reports  of  the  National  Conservation  Commission. 


CHAPTER  VIII 
Forest  Resources 

L  The  forests  of  the  United  States 

1 .  Importance  of  forests 

2.  Groups  of  forests  : 

a.  The  Northeast  Forest 

b.  The  Southern  Forest 

c.  The  Lake  State  Forest 

d.  The  Rocky  Mountain  Forest 

e.  The  Pacific  Coast  Forest 

3.  Consumption  of  wood 

II.  The  destruction  of  forests 

1 .  The  causes : 

a.  Effect  of  early  attitude 

b.  Forest  fires 

2.  The  effects : 

a.  On  the  wood  supply 

b.  On  freshets  and  floods 

c.  On  washouts 

d.  On  droughts 

e.  On  water  power 

3.  The  remedy 

Forests  of  the  United  States.  —  One  of  the  chief  assets 
of  a  nation  is  its  natural  forest  wealth.  Although  forests 
are  usually  thought  of  as  sources  of  lumber  supply,  their 
greatest  value  lies  in  the  part  they  play  in  the  conservation  of 
Their  im-  soil  moisture.  While  lumber  is  important  and 
portance.  present  civilization  largely  depends  upon  it,  sub- 
stitutes for  wood  may  be  found.  But  for  soil  moisture 
there  is  no  substitute;    every  crop  of  grain,  vegetables,  and 

62 


Forest  Resources  63 

fruit  depends  upon  it.  Its  conservation,  therefore,  is  a  mat- 
ter of  vital  importance.  In  addition  to  maintaining  soil 
moisture,  forests,  by  insuring  a  regular  stream  flow,  guaran- 
tee constant  water  power  and  regular  water  transportation. 
Considering,  therefore,  their  direct  and  indirect  value,  for- 
ests serve  perhaps  more  useful  purposes  than  any  other 
natural  resource. 

A  forest  survey  of  the  United  States  shows  that  five  groups 
of  states  embrace  the  naturally  timbered  areas  Groups  of 
of  the  country,  —  the  Northeastern  States,  the  forests : 
Southern  States,   the  Lake  States,   the  Rocky  Mountain 
States,  and  the  Pacific  States. 

In  the  Northeast  district  the  present  stand  is  mainly 
spruce,  second  growth   of  white  pine,  hemlock,  and  hard 
woods.     For  many  years  the  most  characteristic  tree  of  this 
forest  was  the  white  pine,  a  tree  that  has  long  enjoyed 
great  commercial  importance.     The  chief  district  where  this 
tree  grows  in  marked  abundance  is  in  the  confines  of  north- 
ern United  States.     This  white  pine  is  soft,  light,    j,^^^ 
easily   worked,  suitable    for   the    cabinetmaker,    Northeast 
joiner,  carpenter,  and  pattern  maker.     Formerly 
this  wood  was  used  for  general  construction  to  a  greater 
extent  than  any  other  wood  in  the  United  States.     But 
white  pine  is  now  becoming  so  scarce  that  the  best  grades 
cost   more   than   good   mahogany.     In    this   Northeastern 
Forest  another  tree  is  worthy  of  mention,  —  the  spruce, 
which  is  extensively  used  for  wood  pulp. 

In  the  South  are  found  four  types  of  forest,  which  broadly 
speaking  may  be  said  to  divide  the  land  among  them  accord- 
ing to  elevation  above  sea  level.  The  swamp  forests  of  the 
Atlantic  and  Gulf  coasts  and  the  bottom  lands  of  the  rivers 
furnish  cypress   and   hard   woods.     The  remainder  of  the 


64  Elements  of  Economics 

coastal  plain  from  Virginia  to  Texas  was  originally  covered 

with   "  Southern  "   or   "  yellow  "   pine,  —  the  trade   name 

under  which  the  lumber  of  several  pines  is  now 

The 

Southern  marketed.  The  plateau  encircling  the  Appala- 
Forest.  chian  range  and  the  lower  parts  of  the  mountain 

region  itself  support  a  hardwood  forest,  while  the  higher 
ridges  are  occupied  by  conifers,  —  mainly  spruce,  white 
pine,  and  hemlock. 

The  Lake    States   still   contain   many  hardwood   forests 

TheLak        ^^    their  southern  portions.     In  the  north  the 

State  coniferous  forest   includes,   besides    the  rapidly 

dwindling  pine,    considerable    tamarack,  cedar, 

and  hemlock. 

The  forests  of  the  Rockies  occupy  isolated  mountain 
chains  separated  by  grazing  lands,  deserts,  or  cultivated 
The  Rock  valleys.  The  location  of  these  isolated  patches 
Mountain  of  forcsts  is  determined  largely  by  the  degree  of 
'"'"^'  moisture  and  the  presence  or  absence  of  forest 

fires.  The  chief  timber  trees  of  this  belt  are  Western  yellow 
pine,  a  species  of  spruce,  and  the  red  fir. 

The  last  great  stretch  of  woodland  is  the  Pacific  Coast 
Forest,  extending  along  the  coast  west  of  the  Rocky  Moun- 
tain Forest,  and  running  through  the  States  of  California, 
Washington,  and  Oregon.  This  forest  is  the  most  densely 
The  Pacific  timbered  of  any  in  the  country,  perhaps  in  the 
Coast  Forest,  world.  The  characteristic  trees  of  the  district 
are  of  the  fir  species,  especially  that  known  as  the  Douglas 
fir.  Other  trees  found  in  addition  to  the  Douglas  fir  are 
the  Western  hemlock.  Western  yellow  pine,  redwood, 
and  cedar.  Thus  the  forest  areas  of  the  United  States 
contain  a  wide  range  of  both  conifers  and  hard  woods. 

The  United  States  was  endowed  originally  with  rich  forest 


Forest  Resources  65 

resources ;  but,  like  a  spendthrift,  the  nation  has  consumed 
these  riches  in  an  extravagant  fashion.  According  to  gov- 
ernment figures  the  population  of  the  United  States  from 
1880  to  1900  increased  fifty-two  per  cent,  while  our  use 
the  increase  in  lumber  cut  during  the  same  period  °^  ^°°^- 
was  no  less  than  ninety-four  per  cent.  Our  present  annual 
consumption  of  wood  in  all  forms  is  more  than  three  times 
as  great  as  the  annual  growth  of  our  forests.  So  great  has 
been  this  increase  in  the  consumption  of  wood  that  the 
source  of  supply  has  steadily  shifted  westward  until  to-day 
the  product  of  the  Pacific  States  furnishes  a  large  proportion 
of  the  total  output  of  the  country. 

Destruction  of  Forests.  —  Because  so  many  forest  tracts 
have  been  cut  over  and  left  desolate,  the  United  States  has 
now  reached  a  point  where  its  remaining  forests  are  vitally 
important.  This  forest  destruction  may  be  said  to  have 
resulted,  first,  from  the  effect  of  our  early  attitude  toward 
forests.  To  the  American  settler  the  forest  was  Causes: 
an  enemy.  Not  only  did  it  stand  in  the  way  of  ^^^ly 
the  development  of  agriculture,  but  it  sheltered  amtude. 
Indians  and  wild  beasts.  Therefore,  the  settler  naturally 
said,  "Why  take  care  of  an  enemy?  "  Accordingly,  he  began 
as  rapidly  as  possible  to  clear  the  land  of  forests  and  to 
devote  it  to  the  purpose  of  sustaining  life.  In  this  way  a 
habit  of  mind  was  engendered  that  has  had  its  logical  out- 
come in  the  action  of  the  "  timber  butcher,"  who  clears  the 
land  of  everything  "  ten  inches  through  and  eighteen  inches 
from  the  ground." 

Another  cause  of  the  destruction  of  forests  is  the  spread 
of  forest  fires,  against  which  no  local  scientific  means  of  pre- 
vention has  been  taken.  This  loss  from  fire  is  estimated  at 
fifty  million  dollars  annually.    In  unsettled  districts  the  sparks 


66  Elements  of  Economics 

from  locomotives  start  these  fires,  which,  unchecked  except 

by  adverse  wind  and  natural  barriers,  gain  good  headway 

before  they  are  discovered  and  burn  over  thou- 

Forest  fires.  ,        p  rm  .  i  . 

sands  of  acres.  This  was  the  case  m  1894  with 
the  Hinckley  fire  in  Minnesota,  which  destroyed  twenty-five 
million  dollars'  worth  of  property  and  over  four  hundred 
lives.  This  fire  smoldered  for  two  weeks  before  a  high  wind 
came  and  drove  it  fiercely  through  the  forests.  At  any  time 
during  these  two  weeks  an  effort  on  the  part  of  skilled  for- 
esters could  have  extinguished  the  fire  and  saved  the  Hves 
and  property  later  sacrificed. 

Having  seen  the  causes  of  forest  destruction,  let  us  now 
inquire  into  its  effects.  Naturally  the  first  result  of  the 
ruthless  cutting  and  destruction  of  timber  is  to  deprive 
Effects:  ^he  community  of  its  supply  of  wood.  Experts 
On  wood  tell  US  that,  at  our  present  rate  of  consumption, 
supply.  Q^j.  supply  of  commercial  timber  will  last  only 

thirty  years.  This  problem,  while  very  serious  in  itself, 
might  be  solved  through  the  importation  of  wood.  There 
is,  however,  another  phase  of  the  question  still  graver  in  its 
aspect. 

When  a  mountain  range  is  cut  clean  of  timber,  the  brush 
and  limbs  are  left  scattered  over  the  bare  tract.  A  dry 
season  comes  and  a  passing  hunter  drops  a  match  or  a  loco- 
motive throws  a  spark  among  this  brush.  The  conse- 
quence, as  we  have  seen,  is  a  forest  fire.  The  fire,  supplied 
On  freshets  with  the  most  combustible  materials  in  the  way 
and  floods,  ^f  ^ned  branches  and  leaves,  burns  fiercely. 
Most  of  the  vegetable  matter  is  removed  from  the  top  of 
the  ground,  and  the  surface  of  the  earth  is  baked  hard. 
Then  comes  a  rain,  which,  instead  of  soaking  into  the  ground 
as  it  ordinarily  does  in  a  wooded  district,  runs  off  rapidly  into 


Forest  Resources  67 

the  streams,  causing  a  freshet.  If  the  rain  has  been  exten- 
sive enough  and  covered  a  large  tract  of  country,  the  result 
is  a  flood  of  serious  proportions. 

Again,  in  agricultural  districts  where  the  timber  has  been 
cut  from  the  top  of  hills,  a  heavy  rain,  running  off  rapidly, 
washes  the  soil  from  the  slopes  down  into  the  val- 

,  r\  c     ^  11  1  •   1  .On  washouts. 

leys.  One  01  the  great  problems  which  mountam 
farmers,  who  have  allowed  their  timber  to  be  removed,  now 
face,  is  that  of  preventing  washouts  on  the  sloping  fields. 
There  is  still  another  phase  of  the  problem.  As  it  exists 
in  nature,  the  spongy  vegetable  matter  in  the  forests  holds 
the  water  which  falls  in  rainy  seasons  and  allows  it  to  filter 
gradually  off  into  the  springs  and  streams  during 

,         ,   .  .  -r  .      ,  ,  .  On  droughts. 

the  drier    times.     In  many  agricultural    regions 
drought  is  becoming  a  serious    problem    during    the    late 
summer    months.     In    districts    where    forests    have    been 
removed  men  are  surprised  to  find   that  the  springs  and 
streams  dry  up  in  the  summer. 

Finally,  the  results  of  deforestation  are  not  all  direct. 
The  industries  of  the  country  are  depending  more  and  more 
upon  water  power  as  a  motive  force.  In  districts  where 
turbines  have  been  set  up  and  water  power  is  on  water 
being  converted  into  electricity,  low  streams  in  po'^'"^^- 
the  dry  summer  months  force  the  factories  to  close  tempo- 
rarily. One  of  the  greatest  drawbacks  to  generating  power 
on  small  streams,  therefore,  is  that  they  are  flooded  with 
water  in  the  spring  and  empty  in  the  fall.  If  there  were 
timber  land  at  the  head  waters,  both  conditions  would  be 
obviated. 

Thus  we  see  that  a  shortage  of  timber  supply,  with  a  con- 
sequent rise  in  the  price  of  lumber,  disastrous  freshets  and 
floods,  the  washing  away  of  sloping  agricultural  lands,  and 


68  Elements  of  Economics 

the  failure  of  springs  and  streams  are  all  phenomena  result- 
ing from  deforestation. 

These  evils  can  be  remedied  only  by  a  vigorous  policy  of 
conserving  our  existing  forests  and  by  entering  upon  a 
national  campaign  of  reforestation.  If  the  timber  supply 
of  the  country  will  last  but  thirty  years,  it  is  absolutely  neces- 
sary that  every  stick  of  it  should  be  guarded,  that  it  should 
not  be  wantonly  destroyed  through  forest  fires 
™^  ^'  or  timber  cutting,  and  that  proper  provision 
should  be  made  for  replacing  every  tree  consumed.  To 
meet  this  situation  state  action  is  inadequate ;  a  comprehen- 
sive national  policy  is  imperative.  The  United  States 
must  follow  the  e.xample  of  European  countries  and  insist 
upon  a  rigid  policy  of  conservation. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  Explain  the  importance  of  the  forest  as  a  natural  resource. 

2.  What  is  the  relation  between  deforestation  and  floods? 

3.  What  is  scientific  forestry  ? 

4.  Describe  the  German  forestry  service. 

5.  What  could  scientific  forestry  do  for  the  United  States  ? 

6.  What  steps  have  thus  far  been  taken  ? 

7.  What  justification  can  be  advanced  for  the  government  forest 
reserves  ? 

8.  Outline  the  economic  advantages  of  preserving  the  forests. 

REFERENCES 

Conservation  of  Natural  Resources  —  C.  R.  Van  Hise. 

Conference  of  Governors  —  Proceedings,  1908. 

Progress  of  Forestry  —  G.  Pinchot. 

Annals  American  Academy  of  Political  and  Social  Science  —  May, 

1909. 
National  Geographic  Magazine  — •  1902  to  date. 
Reports  of  National  Conservation  Commission. 


CHAPTER  IX 

Water  Resources 

I.  Water  as  a  source  of  power 

1 .  Its  early  use 

2.  Why  used  to-day 

3.  Method  of  utihzation 

4.  Examples  of  utilization  : 

a.  At  Niagara  Falls 

b.  On  the  Pacific  Coast 

c.  In  the  future 

5.  The  problem  arising  from  it 

XL  Water  as  a  means  of  transportation 

1.  Our  inland  waterways  : 

a.  Their  great  extent 

b.  Their  early  importance 

c.  Why  valuable  to-day 

d.  Effect  of  Panama  Canal 

e.  Water  transportation  cheap 

2.  Problems  of  the  Mississippi  River: 

a.  The  cutting  of  its  banks : 
(i)  The  cause 

(2)  The  remedy 

b.  The  flooding  of  the  river : 
(i)  The  cause 

(2)  The  remedy 

c.  The  cost  of  conservation 

In  addition  to  harbors,  there  are  two  other  water  re- 
sources of  great  value  to  a  nation.  The  first  of  these  is  water 
power;    the  second  is  water  transportation.     Both   have 

69 


70  Elements  of  Economics 

been  utilized  in  some  form  throughout  historic  times,  yet 
to-day,  in  the  United  States,  they  are  contributing  only  a 
fraction  of  their  full  quota  to  human  welfare. 

Water  as  a  Source  of  Power.  —  One  of  the  resources 
which  the  early  colonists  found  in  comparative  abundance 
was  water  power.     Throughout  New  England  and  in  cer- 
tain parts  of  the  South,  there  were  innumerable 

Its  6&rlv  USG> 

streams  which  had  a  high  gradient  and  from 
which  considerable  water  power  could  be  developed. 
Therefore,  when  manufacturing  was  begun  in  the  colonies, 
the  power  used  was  naturally  water  power.  The  water 
wheel  was  set  down  directly  on  the  stream,  a  race  was 
constructed,  and  the  revolving  wheel  connected  by  belts  and 
shafts  with  the  machinery  in  the  mill. 

However,  the  application  of  steam  to  industry,  the  dis- 
covery of  coal,  and  the  development  of  steam-propelled 
machinery,  which  came  between  1750  and  1800,  completely 
revolutionized  the  source  of  power  utilized  in  American 
industries.  When  the  great  coal  beds  were  discovered, 
there  was  an  immediate  rush  to  exploit  them;  and  during 
the  nineteenth  century  the  United  States  occupied  itself 
Why  used  in  mining  coal  as  fast  as  it  could  be  used  in  indus- 
to-day.  ^j.y     Toward  the  end  of  the  century,  however,  a 

change  occurred  which  very  materially  altered  the  situation. 
Coal,  particularly  anthracite  coal,  rose  in  price  to  figures 
which  became  almost  prohibitive  in  certain  industries. 
The  situation  was  also  aggravated  by  labor  troubles  which 
rendered  the  coal  supply  at  times  uncertain.  In  addition 
to  this,  experts  declared  that  the  available  supply  of  coal  in 
the  United  States  would  be  exhausted  in  from  forty  to  one 
hundred  years. 

Under    these   circumstances,   attention   was   once   more 


Water  Resources  71 

directed  toward  the  utilization  of  water  as  a  source  of  power. 
The  developing  knowledge  of  electrical  appliances  Method  of 
made  possible  a  revolution  in  methods  of  using  utilisation, 
water  power.  The  old  waterwheel  was  abandoned ;  electric 
turbines  were  installed  at  the  stream,  the  water  power  was 
converted  into  electricity,  and  then  transported  over  wires 
for  great  distances. 

The   most   noteworthy   instance   of    this   conversion   of 
water  power  into  electricity  is  seen  at  Niagara  Falls.     Here 
are  situated  two  plants.     The  one  below  the  Falls  on  the 
American   side  is   located   in   the   Gorge.     The  Examples: 
water  for  its  use  is  drawn  from  the  upper  Niagara    Niagara 
River,  run  through  the  city  of   Niagara  Falls, 
and   discharged   near   the    first    Suspension   Bridge.     This 
plant  is  so  situated  as  to  be  able  to  utilize  a  fall  of  two  hun- 
dred and  fifteen  feet  of  water.     However,  it  has  certain  ob- 
vious disadvantages.     First,  its  buildings  disfigure  the  Gorge ; 
and  in  the  second  place,  the  plant  is  difficult  of  access. 

The  power  plant  above  the  Falls  is  a  rather  novel  one. 
To  construct  it  a  pit  one  hundred  and  fifty  feet  deep  was 
dug  in  the  solid  rock  and  at  the  bottom  of  this  pit  the 
turbines  were  placed.  The  motion  generated  in  the  turbines 
was  returned  to  the  electric  generators  at  the  surface  by 
means  of  steel  shafts.  The  power  generated  at  the  Falls 
supplies  not  only  the  industrial  plants  in  the  immediate 
neighborhood,  but  the  electricity  is  carried  to  Buffalo,  where 
it  is  used  for  trolley  cars,  for  street  and  house  lighting, 
grain  elevators,  and  factories. 

While  this  is  the  most  notable  example  in  the  country  of 
the  development  of  water  power,  the  Pacific  Coast  also 
presents  instances  of  its  utilization.  The  important  thing 
about  Niagara  Falls  is  the  volume  of  its  water.     On  the 


72  Elements  of  Economics 

Pacific  Coast  there  are  no  bodies  of  water  so  large,  but  the 
fall  which  is  secured  is  very  great.  For  example,  a  part  of 
On  the  Pa-  the  clectric  power  used  at  San  Francisco  is  sup- 
cific  Coast,  plied  from  a  plant  located  at  the  foot  of  a  hill 
five  hundred  feet  high,  down  which  the  water  for  the  genera- 
tion of  the  electricity  is  carried  in  steel  tubes.  The  velocity 
of  the  water  when  it  reaches  the  power  plant  is  stated  at 
fourteen  thousand  feet  per  minute.  After  the  power  has 
been  generated  in  this  plant,  it  is  carried  one  hundred  and 
fifty  miles  at  a  pressure  of  from  forty  thousand  to  eighty 
thousand  volts  with  a  loss  of  about  one-fourth  of  the  power. 
There  are  many  other  sections  of  the  country  where  in  the 
future  the  use  of  water  power  may  become  general.  The 
falls  at  Sault  Ste.  Marie  between  Lake  Huron  and  Lake 
Superior  have  a  drop  of  only  twenty  feet,  and  yet  the  volume 
of  water  is  so  enormous  as  to  make  possible  the  development 
of  a  great  amount  of  power.     Likewise,  the  in- 

In  the  future.  n      •  t        ai  •      r^ 

numerable  small  rivers  along  the  Altantic  Coast 
furnish  in  the  aggregate  a  considerable  source  of  water 
power.  Again,  those  who  propose  regulating  the  flow  of  the 
Mississippi  River  by  the  construction  of  reservoirs  at  its 
head  waters  estimate  that  from  these  reservoirs  about  fifty 
million  horse  power  may  be  developed. 

The  real  impetus  to  the  use  of  water  power  in  modern 
industry  was  given  in  the  last  decade  of  the  nineteenth  cen- 
tury, when  it  was  found  that,  by  means  of  it,  electricity  might 

be  cheaply  generated  and  then  carried  great  dis- 
ingVrobiem.  tances    for    commercial   purposes.     Indeed,    the 

possibilities  of  water  power  have  become  so 
great  that  many  conservationists  who  are  working  for 
the  proper  care  of  natural  resources  have  shifted  their 
emphasis  from  forests  and  minerals  to  water  power.     This 


Water  Resources  73 

they  have  done  because  they  reahze  that  individuals  and 
corporations,  through  a  monopoly  of  water  power  sites, 
might  secure  an  unshakable  grip  on  the  natural  resources  of 
the  country. 

Water  as  a  Means  of  Transportation.  —  Quite  a  different 
problem  is  presented  by  water  transportation.  Here,  there 
is  no  danger  of  monopoly,  since  the  ownership  of  the  trans- 
portation facihties  already  lies  in  the  federal  government. 
In  the  United  States,  therefore,  the  problem  of  water  trans- 
portation is  solely  a  problem  of  wise  use  and  development. 

Nowhere  in  the  world  is  there  a  duplicate  of  the  inland 
waterways  of  the  United  States.  On  the  north  lie  the 
Great  Lakes,  which  provide  eighteen  hundred  miles  of 
navigable  water ;  on  the  east  and  west  coasts  are  inland 

wfltcrwflvs ' 

numerous  small,  navigable  streams.  In  the  heart  ^^^^.^  J 
of  the  continent,  reaching  into  twenty-two  of  extent. 
the  States,  is  the  Mississippi  River  System,  which  is  nav- 
igable for  thousands  of  miles.  Although  the  twenty-two 
States  reached  by  the  Mississippi  River  System  furnish 
seventy-five  per  cent  of  all  the  exports  of  the  United 
States,  the  bulk  of  the  agricultural  products,  and  two-thirds 
of  the  manufactured  products,  the  river  system  is  but 
little  used  for  transportation. 

The  early  colonists  depended  upon  water  transportation 
as  they  did  upon  water  power,  because  of  the  abundance  of 
water  and  also  because  there  was  no  other  easy  Their  early 
means  of  getting  from  place  to  place.  The  few  ^"fportance. 
roads  that  existed  were  wretched.  Therefore  the  streams 
became  the  highways  of  trade  and  travel,  and  settlements 
were  made  either  on  the  coast  or  along  rivers. 

The  application  of  steam  to  industry  led  to  the  gradual 
abandonment  of  both  water  power  and  water  transportation. 


74  Elements  of  Economics 

In  both  cases,  however,  the  time  has  now  been  reached  when 
steam  power  will  no  longer  suffice,  and,  in  order  to  maintain 
Why  vaiu-  OUT  industrial  efficiency,  it  has  become  necessary 
able  to-day.  ^q  fg^}]  back  upon  natural  power.  In  both  cases, 
likewise,  the  diminution  of  the  coal  supply  has  played  a 
leading  part.  In  the  case  of  transportation,  however, 
there  is  another  factor  of  even  greater  importance.  In 
prosperous  years  the  railroads  of  the  country  are  unable  to 
handle  the  freight  traffic.  Some  other  means  of  transporta- 
tion is  therefore  inevitable. 

The  value  of  our  inland  waterways  will  be  enhanced  by 
the  opening  of  the  Panama  Canal  and  by  the  development  of 
trade  with  South  America.  This  combination  of  circum- 
i,ff  ,  .        stances  will  make  the  Gulf    the  natural  outlet 

hjject  of 

Panama  for  a  great  amount  of  the  produce  of  the  Missis- 
sippi Basin.  If  to  this  fact  is  added  the  ease 
with  which  heavy  freight  may  be  shipped  by  water,  it  is 
plain  that  logically  a  great  portion  of  the  Mississippi 
Basin's  heavier  products  should  go  to  the  Gulf  by  water. 

Some  idea  of  the  relative  cost  of  shipping  by  rail  and 
by  water  may  be  gained  from  the  statement  that  in  1905 
forty-four  million  tons  of  commerce  passed  through  the 
locks  of  the  Sault  Ste.  Marie  Canal  between  Lake  Superior 
and  Lake  Huron.  This  tonnage  was  carried  for  an  average 
rate  of  .85  mills  per  ton  per  mile.  The  average  freight 
charge  per  ton  per  mile  on  the  railroads  of  the  United  States 
during  1905  was  7.6  mills,  or  about  nine  times  as 
Water  great  as  the  water  rate  for  the  Great  Lakes.     The 

transporta- 

lion  cheap.      Same  idea  is  brought  out  by  a  contrast  between 

two    Pittsburg    rates.     Between    Pittsburg   and 

Lake  Erie  there  is  a  commerce,  composed  chiefly  of  iron 

ore  and  coal,  amounting  annually  to  about  30,000,000  tons. 


Water  Resources  75 

The  ore  is  carried  by  boat  from  Duluth  on  Lake  Superior 
to  Ashtabula  on  Lake  Erie,  a  distance  of  one  thousand  miles, 
for  about  eighty  cents  per  ton.  The  ore  is  then  loaded  on 
cars  and  carried  to  Pittsburg,  a  distance  of  one  hundred  and 
thirty-five  miles,  for  ninety  cents  per  ton,  so  that  it  costs 
ten  cents  more  to  ship  a  ton  one  hundred  and  thirty-five 
miles  by  rail  than  it  does  a  thousand  miles  by  water. 

Thus  water  transportation  possesses  a  great  advantage 
over  land  transportation.  To  reahze  the  full  possibilities 
of  transportation  by  water,  however,  we  must  problems  of 
make  many  improvements  in  the  Mississippi  the  Missis- 
River.  In  fact  this  river  presents  some  serious  ^'^^'' 
problems.  It  is  a  stream  of  bad  habits,  the  worst  of  which 
are  the  cutting  of  its  banks,  the  formation  of  sand  bars  in 
its  channel,  and  the  severity  of  its  floods. 

The  cutting  of  the  banks  is  due  to  curves,  technically 
called  "  meanders,"  and  to  the  river's  digging  under  the 
bank  on  the  outside  of  the  curve,  particularly  during  flood 
times.  Sometimes  this  cutting  amounts  to  one  hundred  or 
one  hundred  and  fifty  feet  a  year.  As  the  channel  cutting  of 
is  necessarily  on  the  outside  of  the  curve,  and  as  ^'^^  *''"*^- 
grain  elevators,  docks,  and  other  instruments  of  traffic  must 
be  reached  by  means  of  this  channel,  it  is  obviously  impos- 
sible to  carry  on  commerce  satisfactorily  if  the  river  is  under- 
cutting the  docks  and  elevators  at  the  rate  of  one  hundred 
feet  a  year. 

The  river  can  never  be  successfully  prevented  from  cutting 
its  banks  until  it  is  straightened.  This  may  seem  almost 
impossible;  but  several  of  the  German  rivers  which  were 
particular  offenders  in  this  respect  have  been  straightened, 
and  in  the  process  the  rivers  were  made  narrower,  the  change 
resulting  in  a  higher  gradient  and  a  more  rapid  current. 


76  Elements  of  Economics 

Besides  straightening  the  river,  we  can  control  its  seasonal 
floods.  Spring  floods  and  summer  droughts  are  due  in  great 
part  to  the  deforestation  of  the  mountainous  country  at  the 
head  waters  of  rivers.  Great  areas  of  land  at  the  head 
waters  of  the  Mississippi  and  its  tributaries  have  been 
practically  deforested.  Consequently,  in  rainy  seasons,  the 
Flooding  of  water  rushes  off  from  the  soil  into  the  streams  and 
the  river.  causcs  flood  damage  farther  down.  Reforesta- 
tion would  eliminate  much  of  the  danger.  The  work  may 
further  be  facilitated  by  the  building  of  storage  dams  which 
will  check  the  floods  and  allow  the  surplus  water  to  flow 
gradually  down  through  the  lower  courses  of  the  rivers. 

The  straightening  of  the  Mississippi,  the  reforesting  of 
the  hills  at  its  head  waters,  and  the  building  of  storage  dams 
on  its  principal  tributaries  to  control  floods  may  cost  one 
Cost  of  con-  hundred  or  two  hundred  or  even  three  hun- 
scrvaiion.  (^j-g^j  million  dollars,  but,  if  the  fuU  possibilities 
of  the  Mississippi  Basin  are  to  be  realized,  sooner  or  later 
these  changes  must  be  made.  The  development  of  water 
transportation  will  involve  in  the  United  States,  as  it  has 
involved  in  Europe,  a  great  outlay  of  capital ;  but  if  the 
experience  of  England  and  Germany  furnishes  any  basis  for 
judgment,  the  outlay,  even  though  it  be  a  great  one,  will 
be  more  than  justified. 

TOPICS  FOR   CLASS   DISCUSSION 

1.  Why  was  water  power  used  extensively  by  the  early  colonists  ? 

2.  What  led  manufacturers  to  replace  water  power  by  steam  ? 

3.  What  is  there  in  the  present  development  that  shows  a  tendency 
toward  the  increased  use  of  water  power  ? 

4.  What  advantages  has  the  use  of  modern  water  power  over  mod- 
ern steam  power  ? 


Water  Resources  77 

5.  What  advantage  has  steam  power  over  water  ? 

6.  In  what  respect  does  a  reversion  to  water  power  show  progress  ? 

7.  What  steps  must  be  taken  to  secure  the  most  economic  use  of 
water  power  ? 

8.  How  important  were  inland  waterways  before  1830? 

9.  Contrast  the  relative  merits  of  the  railroad  and  the  inland  water- 
way. 

10.  Why  are  the  people  of  the  United  States  laying  new  emphasis 
on  inland  w-ater  transportation  ? 

11.  Name  the  leading  inland  waterway  systems  of  the  United  States. 

REFERENCES 

Economic  History  of  the  United  States  —  E.  L.  Bogart. 

Census  of  1900  —  "  Water  Power." 

Conference  of  Governors  —  1908  Proceedings. 

Annals  American  Academy  of  Political  and  Social  Sciencp  —  May, 

1909. 
Ocean  and  Inland  Water  Transportation  —  E.  R.  Johnson. 


CHAPTER  X 

American  Labor 

I.  Nature  of  labor 

1.  Importance  of  labor : 

a.  In  production 

b.  In  the  city 

c.  In  the  country 

d.  In  modern  industry 

2.  Meaning  of  labor 

3.  Conservation  of  labor  : 

a.  Reason  for  conservation 

b.  How  effected : 
(i)  Negatively 
(2)  Positively 

II.  The  labor  force  of  the  United  States 

1 .  Its  origin : 

a.  The  people  of  New  England  : 
(i)  Their  characteristics 

(2)  Their  similarity 

(3)  Their  occupations 

b.  The  people  of  the  Middle  colonies : 
(i)  Elements  in  the  population 

(2)  Their  characteristics 

(3)  Why  they  developed  industry 

c.  The  people  of  the  South  : 

(i)  The  agricultural  conditions 
(2)  Why  slavery  existed 

d.  The  conclusion 

2.  Later  sources : 

a.  The  newer  elements  : 

(i)  From  northwestern  and  central  Europe 

(2)  From  southeastern  Europe 

(3)  From  Canada 

b.  The  resulting  problem 

78 


American  Labor  79 

Nature  of  Labor.  —  There  are  three  factors  in  production, 
—  land,  labor,  and  capital.     A  survey  of  the  natural  re- 
sources of  the  United  States,  of  the  soil,  climate,   its  impor- 
minerals,  forests,  and  waterways,  must  necessarily   ^^^  p/oduc- 
be  followed  by  a  discussion  of  the  second  essen-  Hon. 
tial  to  production,  —  labor.     The  United  States  abounds 
in  resources.     To  convert  these   resources   into   economic 
goods,  labor  is  required.     Labor  has  changed  the  face  of  the 
earth  and  nowhere  is  this  more  noticeable  than  in  the  city. 

Indeed,  the  modern  city  is  almost  wholly  the  product  of 
labor.  In  primitive  societies,  where  men  live  by  hunting 
and  fishing,  nature  supplies  nearly  everything.  Even  in 
the  country  districts  to-day  the  trees,  the  grass,  the  flowers, 
the  rich  soil,  the  springs,  the  waterways,  the  clear  sky, 
and  the  clean  air  are  nature's  gift.     But  in  the 

In  the  city. 

City,  natural  thmgs  have  been  altered.    Ihe  trees, 

the  flowers,  and  even  the  green  grass  are  artificially  placed 

and  protected  by  warning  signs.     Water  can  no  longer  be 

secured  from  a  near-by  spring.     It  has  been  pumped  into  a 

reservoir  or  run  through  an  aqueduct  to  meet  the  city's 

needs.     Even  the  sky  and  air  are  polluted  by  smoke  and 

dust. 

In  short,  the  man  who  comes  to  the  modern  city  and 
looks  at  it  analytically  will  discover  that  natural  things  are 
at  a  premium.  Labor  has  shaped  everything  within  sight. 
But  evidences  of  labor  do  not  appear  in  cities  jnihe 
alone.  The  man  plowing  his  ten-acre  lot  is  '^""""'y- 
laboring.  The  farmer's  reaping  machine,  his  house  and 
barn,  his  macadamized  road,  his  asparagus  bed,  his  peach 
orchard,  —  all  these  represent  an  outlay  of  labor. 

Again,  modern  industry  is  based  on  labor  cooperation. 
The  chair  upon  which  you  are  sitting  is  the  direct  or  indirect 


8o  Elements  of  Economics 

result  of  the  labor  of  thousands  of  men,  women,  and  chil- 
dren. It  was  cut  as  standing  timber  in  the  woods  of  Michi- 
gan with  axes  and  saws  made  in  New  England  factories. 
It  was  hauled  to  a  sawmill  on  bobsleds,  the  bolts  of  which 
were  manufactured  in  Philadelphia,  while  the  steel  runners 
were  made  in  Pittsburg.  It  was  sawed  by  a  band  saw  which 
in  turn  was  produced  in  a  great  factory,  employing  several 
thousand  men.  Then,  in  the  form  of  sawed  lumber,  this 
In  modern  chair  was  shipped  to  a  furniture  mill  over  a 
industry.  railroad  employing  a  hundred  thousand  men. 
When  it  reached  the  furniture  factory,  the  lumber  went 
through  a  great  number  of  processes  until  it  was  converted 
into  a  chair ;  and  each  tool  in  each  process  was  manufac- 
tured in  a  different  city  in  a  different  part  of  the  country 
by  a  different  set  of  employees.  Finally,  the  finished  chair 
was  shipped  on  a  great  railway  system  to  the  city,  where  it 
was  handled  by  a  trucking  company,  delivered  to  the  whole- 
sale house,  sold  to  the  retail  house,  and  eventually  purchased 
by  the  present  owner. 

Labor  is  one  of  the  foundation  stones  of  modern  industry. 
Without  labor,  natural  resources  would  be  useless.  Labor 
bears  the  same  relation  to  land  that  mortar  does  to  bricks ; 
it  brings  natural  resources  together  into  a  permanent 
structure. 

In  economics,  when  we  speak  of  labor,  we  do  not  mean 
merely  manual  labor,  but  all  effort  either  mental  or  physical 
which  is  expended  in  producing  economic  utilities.  The 
man  who  works  with  a  pick  and  shovel  is  a  laborer;  so  is 
Meaning  the  woman  who  works  with  a  needle;  so  is  the 
of  labor.  j^g^j^  ^j^q  works  with  the  pen ;  so  is  the  man  who 
works  with  a  brush ;  so  is  the  man  who  spends  his  time  in 
directing  the  energies  of  others  in  order  that  they  may  assist 


American  Labor  8i 

in  production.  All  of  these  men  are  "  laborers  "  in  the 
economic  sense  because  the  laborer  is  the  man  who  expends 
physical  or  mental  effort  in  the  creation  of  economic  utilities. 

Labor  is  therefore  an  essential  element  in  the  production 
of  wealth  and  in  the  maintenance  of  welfare,  and  every 
effort  should  be  directed  towards  its  conserva-  conserva- 
tion. Since  the  conservation  principle  demands  tion  of  labor: 
that  the  things  of  the  present  be  used  wisely  and  handed  on 
to  the  future  in  the  best  possible  condition,  it  may  be  ap- 
plied to  labor  in  exactly  the  same  way  that  it  is  applied  to 
natural  resources. 

If  men  and  women  are  overworked,  badly  fed,  poorly 
housed,  their  efficiency  will  be  lowered  and  hence  their 
abiHty  to  secure  income  will  be  lessened.  As  the  family 
standard  is  low,  the  standard  of  their  children  Reason  for 
will  be  low  from  birth.  Thus  the  inefficiency  <:onservation. 
and  low  standards  of  one  generation  will  be  reflected  in 
decreased  efficiency  and  lower  standards  in  the  next  genera- 
tion ;  so  that  the  evil  conditions,  which  play  so  large  a  part 
in  making  men  and  women  evil,  will  be  perpetuated. 
Hence  arises  the  necessity  of  adopting  some  policy  of  con- 
serving the  labor  force  of  the  country. 

Both  the  welfare  of  the  community  and  the  efficiency  of 
labor  depend  upon  labor  conservation.  How  then  may  this 
conservation  be  effected  ?  Chiefly  in  two  ways,  —  either 
through  negative  or  positive  measures.  On  the  negative 
side,  certain  factors,  like  bad  living  conditions  and  insanitary 
or  dangerous  working  conditions,  must  be  corrected  by 
purely  repressive  legislation.     For  example,  laws 

1     1       1  •    1  •  1 1  I  11  1         r     1         ^J""""  effected. 

are  needed  which  will  regulate  the  length  of  the 

working   day ;     which    will    insure  abundance   of   air  and 

sunlight  in  both  houses  and  factories;   which  will  protect 


82  Elements  of  Economics 

women  and  children  against  industrial  risks  and  accidents. 
This,  however,  is  only  one  side  of  the  question.  It  is  no 
less  desirable  that  the  positive  factors  in  the  problem  be 
considered.  Welfare  and  efficiency  depend  upon  education. 
Men  in  ignorance  of  working  methods  cannot  do  good  work, 
and,  since  work  to-day  requires  intelligence,  it  follows  that 
the  educated  man  will  be  the  best  worker.  Furthermore, 
modern  work,  besides  being  arduous  and  monotonous,  is 
wearing ;  hence  some  form  of  recreation  and  relaxation  must 
be  provided  in  order  that  efficiency  may  be  maintained. 

The  Labor  Force  of  the  United  States.  —  Since  the  Ameri- 
can Indian  has  never  done  consistent  work,  American  labor 
is  wholly  of  foreign  origin.     From  the  middle  of 
°"^"''  the  seventeenth  century  until  the  present  time, 

the  country  has  been  recruiting  its  labor  from  various  parts 
of  the  world. 

In  the  New  England  colonies  the  Puritan  element  pre- 
dominated.    Stern  ideas  of  living,  an  abhorrence  of  pleas- 
ure, and  a  strong  sense  of  the  holiness  of  work  characterized 
this  group.     The  Puritans  came  largely  from  the  cities  of 
Endand,  where  they  were  artisans  and  trades- 

The  New  &  '  -- 

Emiand  people.  Their  religion  gave  them  deep  convic- 
coio7iisis.  ^-Qj^g  ^^^  j^-g]^  moral  standards,  and  they  were 
persistent  in  their  efforts  to  achieve  any  end  upon  which 
they  bent  their  energies.  They  adapted  themselves  easily 
to  the  new  surroundings,  forming  a  strong  and  persistent 
type  of  man  and  woman  well  calculated  to  overcome  the 
difficulties  incident  to  the  conquest  of  a  wilderness.  Because 
of  their  independence  in  rehgious  and  political  matters, 
they  developed  into  strong  individualists. 

These  early  immigrants   from   England,    together  with 
those  who  came  later  from  Scandinavia  and  north  central 


American  Labor  83 

Europe,  made  up  a  population  whose  home  institutions  and 
racial  ideals  were  so  nearly  alike  that  there  was  no  difficulty 
in  welding  them  into  a  homogeneous  group.  Each  new 
element  which  arrived  from  Europe  was  readily  assimilated 
and  formed  an  integral  part  of  this  solid  mass. 

This  New  England  population  very  readily  conquered 
the  adverse  conditions  of  northern  geography  and  climate. 
They  built  ships  because  shipbuilding  materials  and  harbors 
were  abundant.  They  traded  with  the  West  Indies  because 
the  fish  which  they  caught  all  along  the  coast  formed  an 
exchangeable  commodity  when  salted  and  transported  into 
the  southern  countries.  They  carried  on  manufacturing 
because  the  numerous  rivers  supplied  much  valuable  water 
power.  In  short,  the  New  England  population  measured 
up  to  the  demands  of  the  new  surroundings  and  utilized 
them  in  a  manner  beneficial  to  themselves. 

While  the  people  who  came  to  New  York,  Pennsylvania, 
New  Jersey,  and  Delaware  were  of  a  somewhat  different 
group,  the  basic  elements  of  this  population  were  the  same 
as  those  of  the  New  England  settlers.  The  Quakers  of 
Pennsylvania,  New  Jersey,  and  Delaware  came  The  Middle 
largely  from  England.  They  were  soon  joined  'colonists. 
by  groups  of  Germans,  Swedes,  and  Scotch-Irish,  who  settled 
on  the  land,  developed  the  agricultural  resources,  and  paid 
considerable  attention  to  the  establishment  of  manufactur- 
ing. In  New  York  the  Dutch  were  the  first  settlers,  but 
they  soon  were  reenforced  by  groups  of  Enghsh  and  Germans. 

Therefore,  it  may  be  seen  that  the  general  characteristics 
of  the  New  England  settlers  were  distributed  pretty  freely 
throughout  the  Middle  Athmtic  colonists.  Many  of  the 
newcomers  came  to  America  because  they  believed  in  a 
political   or   religious   i)rin(:ij)lc   and   were   willing   to   make 


84  Elements  of  Economics 

sacrifices  for  it.  If  to  these  qualities  are  added  the  perse- 
verance and  adaptabihty  for  which  the  New  England  colo- 
nists have  become  justly  famous,  a  reasonable  picture  of  this 
middle  group  is  presented. 

The  people  of  the  Middle  colonies,  like  those  of  New 
England,  developed  industry  rather  than  agriculture  for 
two  reasons,  —  first,  because  their  agricultural  land  was 
inferior  in  quality,  and,  secondly,  because  the  opportunities 
for  developing  industry  were  so  abundant.  Not  only  could 
ships  be  built,  but  fishing  could  be  carried  on  profitably. 
It  was  later  discovered,  too,  that  the  deposits  of  iron  could 
be  worked,  that  hides  could  be  manufactured  into  various 
products,  and  that  the  textile  industry  was  not  only  possible 
but  lucrative. 

In  the  Southern  colonies,  agricultural  land  was  abundant 
and  fertile.  Then,  too,  the  climate  was  suited  to  the  pro- 
duction of  tobacco,  rice,  indigo,  and  cotton.  While  indus- 
The  South-  trial  resources  were  slightly  developed,  the 
em  colonists,  gouth  dcvotcd  a  great  portion  of  its  energy  to 
agriculture  because  from  that  occupation  the  greatest  gains 
could  be  secured.  Then,  too,  the  land  in  the  North  was 
divided  into  small  holdings,  while  in  the  South  the  land  was 
laid  out  in  large  plantations  worked  by  indentured  servants 
and  slaves. 

Slavery  did  not  prevail  in  the  North  because  there  was  no 
economic  way  in  which  the  slave  could  be  used.  Slavery 
is  desirable  only  when  a  large  number  of  men  can  be  worked 
together  under  the  charge  of  an  overseer.  In  industry 
this  is  not  possible.  But  since  it  is  possible  in  agriculture, 
large  groups  of  slaves  were  used  profitably  throughout 
the  South.  While  the  labor  force  of  the  North  was  com- 
posed almost  exclusively  of  people  working  for  their  own 


American  Labor  85 

advancement,  that  of  the  South  consisted  chiefly  of  three 
classes,  —  the  landowners,  the  indentured  servants,  and  the 
slaves. 

The  early  population  of  the  United  States  was  drawn  al- 
most exclusively  from  Africa  and  northwestern  Europe. 
With  the  exception  of  the  slaves,  nearly  all  of  those  who 
came  to  America  were  members  of  one  of  the  Baltic  stocks. 
They  had  all  developed  their  ideas  and  ideals  The 
in  the  same  general  part  of  the  world  and  along  conclusion. 
the  same  general  Hues.  In  the  North  these  settlers  were 
therefore  easily  assimilated  and  developed  into  one  compact 
group.  In  the  South,  however,  the  presence  of  a  body  of 
people  who  could  not  assimilate  with  the  whites  made  the 
development  of  a  homogeneous  group  impossible. 

By  the  middle  of  the  nineteenth  century  new  population 
elements  migrated.  Between  1840  and  1850  the  food  short- 
age in  Ireland  sent  milhons  of  immigrants  to  the  United 
States.  Between  1850  and  1880  the  political  and  economic 
disturbances  in  Germany  were  responsible  for  the  immigra- 
tion of  millions  more.  Since  1880,  however,  the  source  of 
immigration    has    been    gradually    shifted    from  Later 

sources  I 

northwestern  Europe  to  southeastern  Europe.  ^^^  ^^^^^^ 
Besides  this  European  shift,  bringing  Slavs  and  elements. 
Italians  to  the  Central  States,  a  large  number  of  French 
Canadians  have  also  come  into  New  England.  Thus,  while 
the  Baltic  countries  of  Europe  furnished  the  early  American 
immigrant,  the  central  and  southern  European  countries 
are  responsible  for  most  of  those  who  have  migrated  during 
the  last  three  decades. 

In  1900  there  were,  roughly  speaking,  thirty  million  wage 
earners  in  the  United  states.  Of  this  number,  six  millions 
were  bom  abroad,  while  five  millions  were  born  in   this 


86  Elements  of  Economics 

country  of  foreign  parents.     Thus,  a  large  portion  of  our 

labor  force,  even  at  the  present  day,  is  made  up,  not  of 

native  Americans,  but  of  foreigners  or  the  chil- 

The  '  "  _ 

resulting  drcn  of  foreigners.  If  we  are  to  maintain  the  ef- 
probicm.  f  ciency  of  labor,  the  problem  which  we  are  now 
confronting  is  to  instill  into  this  labor  population  the  ca- 
pacity for  work,  the  power  of  application,  the  intelligence, 
the  energy,  the  perseverance,  and  the  adaptability  in  de- 
veloping natural  resources  which  characterized  the  early 
settlers. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  To  what  extent  is  labor  essential  in  production  ? 

2.  What  is  the  relation  between  the  amount  of  labor  expended  on  an 
article  and  its  selling  price  ? 

3.  Should  labor  be  the  sole  element  in  determining  the  cost  of  an 
article  ? 

4.  Has  labor  become  more  or  less  important  with  the  development 
of  machinery  ? 

5.  Does  the  average  street  laborer  vyork  hard  ? 

6.  Of  the  street  laborers  that  you  have  observed,  which  race  works 
hardest  ? 

7.  What  environmental  advantages  have  American  laborers  over 
laborers  in  Europe  ? 

8.  Point  out  the  most  salient  characteristics  in  the  original  labor 
force  of  the  country. 

9.  Can  a  distinction  be  made  between  the  original  labor  force  of  the 
country  and  the  group  of  immigrants  at  present  coming  to  the  coun- 
try? 

10.  Has  the  Anglo-Saxon  race  any  peculiar  economic  characteristics  ? 

11.  Upon  what  grounds  do  Anglo-Saxons  base  their  claim  to  leader- 
ship ? 

12.  What  steps  can  the  country  take  to  Americanize  immigrants  ? 

13.  What  traits  do  the  immigrants  possess  that  are  not  possessed 
by  Americans  ? 


American  Labor  87 

14.  Will  immigration  be  of  ultimate  economic  advantage  to  the 
United  States  ? 

15.  WTiich  do  you  consider  more  important :  conservation  of  human 
energy  or  conservation  of  natural  resources  ? 

REFERENCES 

The  Colonies  — R.  G.  Thwaites. 

Students'  History  of  the  United  States  — E.  Channing. 
Industrial  History  of  the  United  States  —  K.  Coman. 
Economic  History  of  the  United  States  —  E.  L.  Bogart. 
Races  of  Europe  —  W.  Z.  Ripley. 


CHAPTER  XI 

Immigration 

I.  Causes  of  immigration 

1.  The  object  in  view 

2.  Military  and  industrial  reasons: 
a.  The  European  need 

h.  The  American  need 

3.  Political  and  religious  aspect: 

a.  The  early  cause  of  immigration 
h.  How  it  reappears  to-day 

II.  Effects  of  immigration 

1.  From  a  racial  standpoint: 

a.  The  groups  of  immigrants 

h.  The  character  of  the  immigrants  : 

(i)  Difference    between  Northern  and    Southern 
races 

(2)  Why  Northern  races  are  preferable 

(3)  What  the  new  elements  may  bring 

2.  From  an  industrial  standpoint : 

a.  The  labor  affected 

b.  Effect  of  immigrant's  standard 

c.  Findings  of  the  commission 

d.  The  conclusion 

Causes  of  Immigration.  —  The  peaceful  migration  of 
great  numbers  of  people  from  one  nation  to  another  is  a 
modern  phase  of  an  old  problem.  Formerly,  if  a  land 
flowed  with  milk  and  honey,  kings  led  their  armies  against 
Object  in  it,  enslaved  or  drove  out  the  inhabitants,  and 
^*®^-  took  possession  of  the  fields  and  cattle.     Under 

such  circumstances  the  movement  of  a  few  thousand  men 
from  one  State  to  another  constituted  a  menace  to  social 


Immigration  89 

welfare.  But  to-day  millions  of  persons  move  from  one 
nation  to  another  without  attracting  more  than  passing 
notice.  The  movement,  instead  of  being  warlike,  takes  the 
form  of  a  peaceful  conquest  of  natural  resources. 

The  monarchs  of  the  Old  World  in  order  to  insure  the 
permanence  of  a  large  emergency  army  wish  to  keep  at 
home  as  many  of  their  subjects  as  possible.  This  necessity 
of  military  service  is  one  of  the  great  causes  of  emigration 
from  Europe.  On  the  other  hand,  in  America,  unitary  and 
we  do  not  emphasize  an  increase  in  our  military  industrial 
army,  but  we  do  look  continually  for  an  increase 
in  our  industrial  army.  It  is  upon  industrial  recruits  that 
we  depend,  just  as  the  European  sovereign  depends  upon 
miUtary  organization.  The  immigration  of  a  group  of 
strong,  intelHgent  men  and  women,  therefore,  makes  a 
welcome  addition  to  the  ranks  of  American  labor. 

Religious  and  political  persecution  furnish  another  motive 
for  emigration.  The  best  elements  among  the  early  colo- 
nists left  the  Old  World  because  they  could  not  secure  there  a 
reasonable  toleration  of  their  political  or  religious  pou^icai  and 
views.  They  were  progressive  thinkers,  —  men  religious 
who  had  so  great  faith  in  their  convictions  that  *^^^*^ " 
they  were  willing  to  leave  their  mother  country  and  make 
a  new  home  in  a  new  world.  A  study  of  present  immigration 
shows  that  some  people,  notably  the  Jews,  arc  still  coming 
to  America  for  the  same  reasons. 

Effects  of  Immigration.  —  In  order  to  understand  clearly 
the  effect  of  immigration,  we  must  first  know  From  a 
the  character  of  the  immigrant.    The  three  groups  ^J^J^^j  ^.^^  ^ 
of  European  races,  —  the  Baltic  or  Northwestern  Groups  oj 
races;    the  Alpine  or    central  European  races;  i^nmigrants. 
and  the  Mediterranean  or   Southern  races,  —  differ  some- 


go  Elements  of  Economics 

what.  From  the  Baltic  races  have  come  the  Scandinavians, 
the  Germans,  the  Enghsh  and  alhed  groups ;  from  the  Cen- 
tral European  races,  the  Slavs,  Russian  Jews,  Austrians,  and 
Hungarians ;  while  from  the  Mediterranean  countries  have 
come  the  Italians,  the  Greeks,  and  the  Syrians. 

With  this  change  in  the  source  of  immigration  from  the 

northwest  to  the  southeast  of  Europe  there  has  been  a 

corresponding   change  in   the   character  of   the 

Character  of    ij^j^jp-j-ants  thcmselvcs.     The  Baltic  races  were 

immigrants.  ° 

more  highly  educated,  more  easily  adaptable 
to  new  surroundings,  and,  in  addition  to  these  two  valu- 
able characteristics,  furnished  a  large  number  of  skilled 
artisans  and  mechanics.  In  contrast  with  them,  the 
Alpine  and  Mediterranean  peoples  show  a  high  percentage 
of  illiteracy  and  are  prepared  to  do  little  except  unskilled 
work. 

Whether  one  race  is  inherently  more  efficient  than  another 
we  are  not  prepared  to  decide.  It  is  apparent,  however, 
that  at  the  present  time  the  immigrants  of  northern  Europe 
are  better  educated  and  better  adapted  to  our  standards 
than  the  immigrants  of  southern  Europe.  The  North 
Europeans  are  more  in  sympathy  with  our  political  and 
industrial  methods  because  their  institutions  approximate 
more  closely  to  ours  than  do  the  institutions  of  southern 
Europe. 

On  the  other  hand,  it  is  questionable  whether  the  various 
groups  of  immigrants  are  not  bringing  to  this  country  some- 
thing which  it  really  needs.  For  example,  the  Polish  race  is 
essentially  musical  and  its  aesthetic  standards  are  very  high  ; 
the  Russian  Jews  are  highly  intellectual ;  and  the  Italians 
are  bringing  to  America  artistic  ability  of  a  high  order.  If 
these  various  qualities,  which  have  been  more  highly  devel- 


Immigration  91 

oped  in  some  countries  than  in  others,  can  be  combined  with 
the  industrial  efficiency  of  the  American,  the  result  may  be  a 
race  of  people  more  advanced  than  the  world  has  ever 
known. 

Apart  from  the  racial  contribution  which  the  immigrant 
makes  to  this  country,  what  is  his  effect  upon  the  wage- 
working  part  of  our  population  ?     Disregarding  the  children 
of  the  immigrant,  who  enjoy  the  benefit  of  the  From  an 
public  school  system,  and  considering  only  the  '^dustnai 
untutored  immigrant  himself,  it  is  clear  that  the    jhe  labor 
average  unskilled  immigrant  can  have  little  or  "Jfectcd. 
no  effect  except  upon  semi-skilled  and  unskilled  labor. 

The  Russian,  Hungarian,  or  Italian  immigrant  comes  from 
a  country  where  the  standard  of  living  of  the  working  popula- 
tion is  low.  To  him,  windows  and  doors  are  often  luxuries. 
In  some  places  in  Russia  even  a  wooden  floor  is  considered 
a  boon.  Consequently,  to  many  of  the  immigrants,  the 
tenement  house  of  our  great  cities  is  a  paradise.  j,„,„i„ra,H's 
The  immigrant  will  work  for  a  low  wage  because  standard  and 
he  is  accustomed  to  poor  food  and  a  small  amount  ^'^  '' 
of  clothing.  The  presence  of  large  numbers  of  immigrants 
in  any  community  will  therefore  result  in  a  temporary 
lowering  of  the  wage  standard.  In  many  localities  this  has 
actually  happened.  As  a  result,  it  is  rare  in  those  localities 
to  find  American-born  persons  working  as  common  laborers, 
because,  accustomed  to  a  high  standard,  they  are  unable  to 
exist  on  the  wage  which  the  immigrant  will  accept. 

The  Immigration  Commission,  which  made  its  report  to 
Congress  after  an  extended  inquiry  into  the  various  sources, 
character,  and  cfTects  of  immigration,  concluded  that  the 
present  immigration  was  detrimental  to  the  best  interests  of 
the  United  States.     Modern  immigration,  the  Commission 


92  Elements  of  Economics 

holds,  tends  to  lower  social  and  industrial  standards.  The 
^.  ,.  immigrant,  a  low-standard  man  in  the  country 

Fl  tldl  71  ss 

of  the  from  which  he  comes,  fails  to  grasp  the  signifi- 

Commission.  ^^^^^  ^f  ^^ie  higher  American  standards.  He  is 
willing  to  live  in  more  congested  quarters,  to  accept  a  lower 
standard  of  diet,  and  to  work  for  less  wages.  The  American, 
accustomed  to  higher  standards,  is  unwilling  to  come  down 
to  the  lower  level.  In  the  competition  which  follows  he 
is  inevitably  beaten  because  he  must  either  lose  his 
position  or  accept  the  standard  set  by  the  immigrant. 

Therefore,  whatever  the  ultimate  effect  of  immigration, 
its  present  influence  is  clear.  In  the  future  the  immigrant, 
or  at  least  his  American-taught  children,  will  doubtless 
demand  higher  standards  of  Hfe  and  work ;  but  so  long  as  a 
million  men  and  women  annually  leave  the  poorer  districts 
of  Europe  and  bring  their  low  standards  of  life  to  the  United 
j^g  States,  the  American  laborer  will  be  confronted 

conclusion,  j^y  ^  competition  which  will  ultimately  lower  his 
standards  and  compel  him  to  seek  work  elsewhere.  It  is 
perfectly  evident,  therefore,  that  from  the  standpoint  of 
American  labor,  foreign  immigration  should  be  so  restricted 
and  regulated  that  the  present  standard  of  living  of  the 
native  American  may  be  maintained. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  Point  out  the  economic  effects  of  immigration  in  the  United 
States. 

2.  Would  the  American  labor  force  be  more  efficient  without  the 
immigrant  ? 

3.  How  would  heavy  unskilled  tasks  be  performed  if  the  immigrant 
were  excluded  ? 

4.  What  effect  has  immigration  on  the  unskilled  labor  wage  ? 


Immigration  93 

5.  Would  it  be  desirable  to  bar  out  all  Chinese  and  Japanese  immi- 
grants ? 

6.  Account  for  the  low  standard  on  which  the  immigrant  is  willing 
to  live. 

7.  Will  Greeks,  Italians,  and  Poles  make  good  American  citizens  ? 

8.  What  is  the  underlying  reason  for  permitting  immigration  into 
the  United  States  ? 

9.  Name  the  more  important  motives  by  which  persons  are 
(a)  induced  to  leave  the  country  of  their  birth;  (b)  attracted  to  other 
countries. 

10.  Explain  the  great  fluctuations  of  the  movement  of  immigrants 
to  the  United  States  since  1820. 

11.  What  change  in  the  prevailing  character  of  our  immigrants  has 
occurred  within  the  last  generation  ? 

12.  It  is  argued  that  cheap  immigrant  labor  is  like  machinery  — 
an  added  aid  in  production  which  relieves  the  (native)  laboring  class 
from  heavy  and  disagreeable  toil.     Is  the  analogy  true  ? 

13.  Will  the  present  immigration  be  of  ultimate  economic  ad- 
vantage to  the  United  States  ? 

14.  Is  the  manufacturer's  argument  for  cheap  immigrants  valid 
from  the  point  of  view  of  society  in  general  ? 

15.  Should  immigration  be  restricted?  If  restrictions  are  im- 
posed, should  they  limit  the  number  of  immigrants,  or  fix  a  test  of 
the  quality  of  immigrants,  or  do  both  ? 

16.  Would  restriction  of  immigration  be  justified  if  the  congestion 
of  immigrants  in  cities  and  along  the  seaboard  could  be  prevented, 
and  the  foreign  elements  distributed  over  the  whole  country  ? 

REFERENCES 

The  Immigrant  Tide  —  E.  A.  Steiner. 

On  the  Trail  of  the  Immigrant  —  E.  A.  Steiner. 

Immigration  —  P.  F.  Hall. 

Reports  U.  S.  Commissioner  of  Immigration. 

Races  of  Europe  —  W.  Z.  Ripley. 

Emigration  and  Immigration  —  R.  Mayo-Smith. 

Races  and  Immigrants  in  America  —  J.  R.  Commons. 


CHAPTER  XII 

The  Risks  of  Labor 

I.  Industrial  accidents 

1.  Kinds  of  accidents  : 

a.  Railroad  accidents : 
(i)  Their  number 

(2)  The  causes 

(3)  The  remedy 

b.  Mining  accidents : 
(i)  Their  number 

(2)  The  situation  abroad 

(3)  The  remedy 

c.  Factory  accidents 

d.  Building  accidents 

2.  Total  annual  number  of  accidents 

3.  The  labor  affected 

4.  Effects  of  accidents 

II.  Dangerous  trades 

1.  Chief  source  of  danger 

2.  Danger  from  coal  dust : 

a.  Character  of  the  lungs 

b.  Effect  on  the  lungs 

c.  How  preventable 

3.  Danger  from  lead  poisoning: 

a.  Effects  on  the  system 

b.  How  preventable 

4.  Other  dangerous  trades 

The  risks  to  which  labor  is  subjected  in  modern  industry 
may  be  grouped  under  two  heads :  first,  those  involved  in 
industrial  accidents,  and  secondly,  those  arising  from  dan- 
gerous trades  and  occupations. 

94 


The  Risks  of  Labor  95 

Industrial  Accidents.  —  Industrial  accidents  include  those 
catastrophes  which  either  temporarily  or  permanently 
destroy  the  efficiency  of  the  wage  earner.  They  may  be 
classified  according  to  occupation  as  railroad,  mining, 
factor}-,  or  building  accidents. 

The  material  regarding  railroad  accidents  is  compiled 
by  the  Interstate  Commerce  Commission  and  must  be  fur- 
nished by  the  railroads  as  part  of  their  reports  to  the  Com- 
mission. No  other  American  accident  statistics  Railroad 
are  collected  in  such  careful  detail.  In  1Q07,  accidents. 
11,839  persons  were  killed  and  111,016  injured  in  railway 
accidents.  A  study  of  the  decade  1897  to  1907  shows  a 
steady  increase  in  the  number  of  accidents.  In  1897  ^^'^^ 
railway  employee  was  killed  for  every  486  employed,  while 
in  1907  one  was  killed  for  every  369  employed.  Railroad 
casualties  are,  therefore,  not  only  appalling  in  number  but 
increasing  in  frequency. 

That  there  is  no  justification  whatsoever  for  this  increase 
is  proved  by  conditions  in  foreign  countries,  where  the  infre- 
quency  of  railroad  accidents  is  in  marked  contrast  to  our 
own  waste  of  human  hfe.  The  causes  of  this  waste  of  hfe 
through  railroad  accidents  are  found  both  in  individual 
action  and  in  corporate  management.  So  long  as  indi- 
viduals arc  careless,  accidents  will  occur;  and  so  long  as 
corporations  fail  to  supply  devices  for  the  safety  of  their 
employees  and  passengers,  the  same  result  will  follow. 

A  remarkable  proof  of  the  fact  that  working  conditions 
are  largely  responsible  for  these  accidents  is  furnished  by  the 
beneficial  efTect  of  the  federal  law  requiring  automatic  cou- 
plers. In  1893,  of  ^he  20,444  casualties  among  trainmen, 
9063,  or  44.33  per  cent,  were  "  coupling  accidents."  But 
in  1908,  although  the  total  number  of  casualties  had  in- 


96  Elements  of  Economics 

creased  almost  100  per  cent,  the  number  of  accidents 
due  to  coupling  had  fallen  to  3385,  or  d>.d>  per  cent  of  the 
total  casualties.  Equally  effective  results  would  doubtless 
be  secured  by  other  forms  of  federal  regulation  concerning 
the  length  of  runs,  the  character  of  signals,  and  the  number 
of  working  hours.  Railway  accidents  are  enormous  in 
number,  but  by  wise  precaution  and  stringent  legislation, 
they  can  be  largely  eliminated. 

Accidents  in  coal  mines  are  the  most  common  of  the 
mining  accidents.  The  record  of  coal  mine  accidents  in 
the  United  States  is  unsatisfactory  because  it  consists 
merely  of  a  collection  of  the  reports  of  state  mine  inspectors 
who  are  in  some  cases  anything  but  efficient.  For  1908, 
Mining  2450  miners  were  killed  and  6772  were  injured. 

accidents.  "  jhe  death  roll  in  the  coal  mines  of  the  United 
States  in  1908  was  smaller  than  that  in  1907,  but  with  the 
exception  of  1907,  it  was  the  largest  in  the  history  of  the  in- 
dustry, wliile  in  the  number  of  men  injured  the  record  for 
1908  exceeds  that  of  even  1907."  Disregarding  then  the 
year  1907,  in  which  the  number  killed  was  phenomenal,  it  is 
safe  to  say  that  there  has  been  a  steady  increase  from  year 
to  year,  not  only  in  the  actual  but  also  in  the  proportional 
number  of  men  killed  in  mining  accidents. 

This  increase  cannot  be  accounted  for  merely  by  the 
growth  of  the  mining  industry.  A  recent  bulletin  on  coal 
mine  accidents  dealing  with  conditions  abroad  proves  this 
conclusively.  It  states :  "  In  all  the  European  coal-pro- 
ducing countries  the  output  of  coal  has  increased  greatly 
during  the  last  ten  years,  but  the  number  of  deaths  per  one 
thousand  miners,  instead  of  increasing  as  in  this  country, 
has  undergone  a  marked  and  decided  decrease.  This  de- 
crease has  been  due  to  the  effect  of  mining  legislation  in  those 


The  Risks  of  Labor  97 

countries  for  the  safeguarding  and  protection  of  the  hves 
of  the  workmen,  and  has  been  made  possible  by  govern- 
ment action  in  establishing  testing  stations  for  the  study  of 
problems  relative  to  safety  in  mining,  including  the  use 
of  explosives." 

The  success  of  foreign  governments  in  preventing  min- 
ing accidents  has  been  due  primarily  to  their  regulation  of 
safety  lamps  and  of  the  character  and  use  of  mine  explosives. 
Nothing  could  be  more  elementary  and  simple,  and  yet  the 
United  States  has  made  but  little  effort  to  meet  the  problem 
in  this  way. 

Turning  now  to  accidents  in  manufacturing,  we  find  that, 
because  of  inefficiency  and  lack  of  uniformity  in  the  work  of 
state  factory  inspectors,  it  is  impossible  to  determine  accu- 
rately the  total  number  of  such  accidents.     However,  the 
best  statistics  of  factory  accidents  have  been  compiled  from 
the  reports  of  the  New  York  Bureau  of  Labor 
Statistics.     From  1901  to  1906  there  were  39,244  J^'l^'J^i^^ 
accidents  reported.     Of  this  number,  864  were 
fatal;    6580  involved  permanent   disabiHty;     and   32,722 
temporary  disability.     Thus,   of  the  factory  accidents  in 
New  York  State,  2.2  per  cent  were  fatal;    16.8  per  cent  in- 
volved permanent  disability ;   80.8  per  cent  temporary  dis- 
ability, while  .2  per  cent  were  unclassified. 

The  accidents  in  building  trades  have  never  been  recorded 
except  in  a  fragmentary  form.  It  is  therefore  impossible 
to  say  anything  definite  regarding  them.  The  Building 
only  accurate  information  that  can  be  secured  a"**^"*^^- 
comes  from  the  unions  which  pay  benefits.  The  accident 
features  of  these  unions  furnish  material  from  which  may  be 
made  an  estimate  of  the  number  of  union  men  killed  and 
injured  in  each  trade. 


98  Elements  of  Economics 

Enough  has  been  said,  however,  to  show  that  the  total 
loss  to  the  community  caused  by  accidents  of  one  kind  or 
Total  annual  another  is  enomious.  An  estimate  of  this  loss 
number  of  has  been  made  by  Arthur  B.  Reeve,  who  places 
acci  ents.  ^j^^  total  number  of  men,  women,  and  children 
killed  and  injured  each  year  through  industrial  accidents 
at  five  hundred  thousand.  This  figure  is  as  nearly  accurate 
as  possible,  for  it  is  arrived  at  by  five  different  computations. 

It  is  not  true,  as  it  is  currently  supposed,  that  these  acci- 
dents happen  only  to  the  careless,  unskilled  laborer,  the 
immigrant,  and  the  American  of  low  standard.  Not  only  is 
the  semi-skilled  trainman  a  victim  of  the  railroad  accident, 
The  labor  but  also  the  conductor  and  the  skilled  engineer, 
affected.  ^  Pittsburg  investigation  shows  that  of  440  men 
killed,  46  per  cent  were  earning  over  fifteen  dollars  a  week, 
and  nearly  29  per  cent  over  twenty  dollars  a  week.  Thus 
the  social  cost  of  accidents  is  intensified  by  the  fact  that  efii- 
cient  as  well  as  inefficient  workmen  are  victimized. 

The  burden  of  accidents  falls  on  the  family  and  on  the 
community.  The  accident  destroys  the  worker.  The 
worker  is  the  mainstay  of  the  family,  which  is  itself  the  basis 
of  the  community.  While  children  and  old  people  escape 
Effects  of  industrial  accidents,  the  breadwinners  upon 
accidents.  whom  they  depend  for  subsistence  are  struck 
down  at  the  rate  of  half  a  milhon  every  year.  Industrial 
accidents,  therefore,  constitute  one  of  the  causes  of  indus- 
trial inefficiency.  Of  the  half  million  persons  annually  killed 
and  injured,  the  majority  are  wage  earners  with  families 
depending  upon  them.  Their  death  or  injury,  therefore, 
affects  the  eflficiency  of  the  coming  generation. 

Dangerous  Trades.  —  Another  danger  to  which  labor 
is   subjected  results   from   the  nature  of   the  occupation. 


The  Risks  of  Labor  99 

While  fortunately  not  numerous,  certain  trades  do  exist 
where  the  death  rate  is  several  times  liigher  than  the  death 
rate  in  the  community  at  large.  When  a  workman  enters 
such  a  trade  and  accepts  such  work,  he  signs  a  contract  with 
the  undertaker. 

The  chief  source  of  danger  in  these  occupations  arises 
from  the  presence  of  dust,  which,  entering  the  system  through 
the  lungs  or  alimentary  canal,  proves  injurious  to  the 
worker.  Dust  may  also  irritate  the  skin,  but  its  eiTects 
here,  except  in  the  cases  of  antimony  smelters  chief  source 
and  arsenic  grinders,  are  usually  not  serious.  °^  danger. 
In  cases  where  dust  enters  the  alimentary  canal,  stomach 
and  intestinal  troubles  result ;  when  it  enters  the  lungs, 
tuberculosis  develops.  According  to  the  industry  giving 
rise  to  it,  dust  is  of  five  kinds:  (i)  metallic  dust,  (2)  min- 
eral dust,  (3)  mixed  dust,  (4)  animal  dust,  and  (5)  vegetable 
dust. 

Thomas  Oliver  in  his  "  Dangerous  Trades  "  says,  "  Were 
it  not  for  dust,  fumes,  or  gas,  there  would  be  little  or  no 
disease  due  to  occupation,  except  such  as  might  Danger  from 
be  caused  by  infection,  the  breathing  of  air  ^°^^  **"^*  • 
poisoned  by  the  emanations  of  fellow-workmen,  and  expo- 
sure to  cold  after  working  in  overheated  rooms."  Dust, 
then,  is  the  most  prevalent  source  of  danger ;  and  its  most 
injurious  effect  is  on  the  lungs. 

The  normal  lung  is  a  light,  spongy  mass,  interwoven  with 
minute  bronchial  tubes.  Nature  planned  to  exclude  foreign 
substances  from  these  tubes  by  placing  hair  in  the  nose  and 
large  tubes,  and  by  guarding  the  whole  passage-  character  of 
way  with  the  vocal  chords  and  the  cartilage  '^''  '""'•'^• 
plates.  These  devices  prevent  any  ordinary  amount  of 
dust  from  reaching  the  lungs.     But  in  the  coal  mines  there 


loo  Elements  of  Economics 

is  more  than  an  ordinary  amount.  A  visitor,  long  after 
leaving  a  breaker  in  which  coal  is  cleaned  dry,  will  continue 
to  expectorate  dust  or  coal  particles  which  have  been  ar- 
rested in  the  larger  passages.  A  long  exposure  to  dust, 
however,  dulls  the  sensibility  of  the  membranes;  efforts 
are  no  longer  made  to  expectorate  the  dust,  and  the  particles 
enter  the  small  tubes  of  the  lungs  and  become  imbedded 
in  the  lung  tissue. 

Thomas  Oliver  states  that  "  In  a  coal  miner's  lung 
there  can  be  observed  small  masses  of  cells,  deeply  laden 
with  carbon  particles  surrounded  by  a  hardened  zone  of 
altered  lung,  numerous  black  streaks  underneath  the 
Efecton  pleura  or  covering  of  the  lungs,  ink-like  dots 
the  lungs.  j^  the  walls  of  the  small  bronchi,  and  enlarge- 
ment with  pigmentation  of  the  bronchial  glands."  The 
entrance  of  dust  into  the  lung  finally  converts  it  into  "  a 
hard  and  almost  solid  organ,  incapable  of  carrying  on  the 
work  of  respiration." 

A  similar  effect  is  produced  by  other  forms  of  dust. 
Examinations  show  particles  of  grit  embodied  in  the  tissue 
corresponding  exactly  to  the  dust  grit  of  the  trade  in  which 
the  victim  worked.  Therefore  the  man  who  goes  to  work 
in  a  dusty  trade  prepares  his  lungs  for  a  cordial  reception 
Bow  pre-  to  tuberculosis  or  any  other  bacteria  which  attack 
veritable.  weakened  lung  tissue.  However,  much  can  be 
done  in  the  way  of  precaution  and  prevention.  By  screen- 
ing the  coal  wet,  the  dust  in  the  coal  breaker  may  be  re- 
duced ;  and  by  the  use  of  suction  wheels,  blowers,  and  other 
mechanical  devices,  the  dust  in  the  factories  may  be  rendered 
less  dangerous. 

There  are  other  occupations  besides  mining  that  are  full 
of  risk  and  danger.     Certain  substances  used  in  industry 


The  Risks  of  Labor  loi 

are  always  injurious  to  life  and  health.  Among  these 
substances  none  is  more  widely  used  nor  more  really  danger- 
ous than  lead  in  its  various  forms.     Lead  poison-  Danger 

,  ,  1     •.    •  .    from  lead 

ing  occurs  m  several  trades,  although  it  is  most  poisoning: 

severely  felt  in  the  manufacture  of  white  lead,   its  ejects. 
Poisoning  from  lead  may  be  acute  or  chronic.     The  symp- 
toms of  both  forms  are  colic,  "  wristdrop,"  loose  teeth,  and 
a  blue  line  on  the  gums. 

Ventilation,  an  abundance  of  nutritious  food,  abstinence 
from  all  excess,  especially  alcoholic,  the  use  of  special  hel- 
mets, together  with  short  hours  in  the  factory,  jjow  pre- 
all  assist  in  decreasing  the  dangers  from  lead  ■^"itMe. 
poisoning.  There  is  no  other  industry  in  which  the  dangers 
are  more  acute  and  where  the  necessity  of  precaution  and 
preventive  measures  should  be  more  emphasized. 

The   production   of    phosphorus,  mercury,  and   arsenic ; 
the  chemical  trades ;    rag  sorting ;    wool  sorting ;    work  in 
compressed  air  chambers,  —  all  involve  dangers  ^^^^^ 
of  varying  degree.     The  reference  to  mining  and  dangerous 
the  lead  industry  will,  however,  suffice  to  indicate 
the  character  of  dangerous  trades,  their  effects,  and  the 
possibility   of   remedying    them    through   wise   preventive 
measures. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  Are  industrial  accidents  inevitable  ? 

2.  In  a  case  where  persons  are  killed  and  injured  in  a  wreck  due 
primarily  to  a  defective  air  brake,  what  should  be  done  ? 

3.  To  what    extent    is    the  community  at  large  responsible   for 
accidents  ? 

4.  Where  does  the  ultimate  burden  of  industrial  accidents  rest  ? 

5.  Should  a  manufacturer   be   held    personally  responsible  for  an 
accident  due  to  unguarded  machinery  ? 


I02  Elements  of  Economics 

6.  What  would  be  the  most  effective  method  of  preventing  acci- 
dents ? 

7.  Discuss  workmen's  compensation  as  a  remedy. 

8.  Analyze  the  street  accidents  of  your  city,  and  develop  a  means 
of  prevention. 

9.  What  is  a  dangerous  trade  ? 

10.  Why  is  lead  poisoning  particularly  disastrous  ? 

11.  What  remedies  exist  for  the  dangers  involved  in  dangerous 
trades  ? 

12.  Are  consumers  justified  in  using  the  products  of  such  trades  ? 

13.  Several  European  governments  have  abolished  the  manufacture 
of  white  phosphorous  matches  because  of  the  danger  involved  in  the 
industry.  Would  the  states  in  which  white  phosphorous  matches  are 
made  be  justified  in  adopting  similar  measures  ? 

REFERENCES 

Annals  American  Academy  of  Political  and  Social  Science  —  July, 

1911. 
The  Pittsburg  Survey  — P.  U.  Kellogg,  Editor. 
Industrial  and  Personal  Hygiene  —  G.  M.  Kober. 
Diseases  of  Occupation  —  T.  Oliver. 
Dangerous  Trades  —  T.  Oliver. 


CHAPTER  XIII 

Some  Labor  Problems 

I.  Child  labor 

1 .  Its  English  origin 

2.  Its  extent  in  the  United  States 

3.  Its  evil  consequences  : 
a.  On  the  child  : 

(i)  Physically 
(2)  Mentally 
•   (3)  Morally 
h.  On  family  life 

c.  On  society 

d.  On  the  product 

4.  Its  regulation 

II.  Women  workers 

1.  Why  women  enter  industry: 
a.  Minute  subdivision  of  labor 
h.  Acceptance  of  lower  wages 
c.  Loss  of  home  employment 

2.  Arguments  against 

3.  Arguments  in  favor  of 

III.  Unemployment 

1.  Causes: 

a.  Personal  causes : 
(i)  Malnutrition 
(2)  Sickness  and  accidents 

h.  Industrial  causes 

2.  Effects: 

a.  On  the  unemployed 
h.  On  the  family 

3.  The  outlook 

103 


T04  Elements  of  Economics 

There  are  several  labor  problems  which  are  continually 
before  the  public  for  discussion  and  solution.  Prominent 
among  them  are,  —  (i)  the  problem  of  child  labor,  (2)  that 
of  women  in  industry,  and  (3)  that  of  unemployment. 

Child  Labor.  —  The  problem  of  child  labor  had  its  real 
origin  in  England  in  the  last  half  of  the  eighteenth  century 
when  the  factory  system  was  first  being  developed.  Manu- 
facturers were  in  great  need  of  unskilled  labor  to  operate  the 
new  machinery.  Poorhouses  and  orphan  asylums  were  over- 
crowded with  just  this  kind  of  labor.  As  a  result,  these 
institutions  gave  up  their  children  to  the  manufacturers, 
v/ho  in  certain  cases  even  agreed  to  take  one  insane  child 
with  every  twenty  healthy  ones.  The  children  were 
Its  English  quartered  in  barracks  and  worked  in  day  and 
origin.  night  shifts,  the  day  shifts  sleeping  in  the  beds 

which  the  night  shifts  left  and  vice  versa.  No  provision 
was  made  for  sanitation,  and  the  children  were  fed  on  the 
worst  kind  of  food.  These  conditions,  culminating  in  an 
outbreak  of  disease  and  epidemics,  led  to  the  passage  of 
the  Act  of  1802  for  the  regulation  of  the  health  and  morals 
of  apprentices.  Finally,  in  1847,  a  much  more  comprehen- 
sive and  effective  law  regulating  the  labor  of  all  women  and 
children  in  industry  was  passed. 

Child  labor  in  the  United  States  is  merely  a  recurrence  of 
an  Old  World  phenomenon.  In  1900  there  were  in  the 
Its  extent  in  United  States  over  one  and  three  quarter  millions 
United  of  children  between  the  ages  of  ten  and  fifteen 

employed    in    gainful    occupations.      Of    these 
1,750,178  children  so  employed,  — 
60.7  %  were  engaged  in  agriculture  ; 

16.2  %  were  engaged  in  manufacturing  and  mechanical  pur- 
suits ; 


Some  Labor  Problems  105 

15.9  ^  were  engaged  in  domestic  service; 
6.9  %  were  engaged  in  trade  and  transportation; 
0.2  %  were  engaged  in  professional  service. 
Although  the  largest  number  of  children  are  employed  in 
agriculture,   child  labor  is  usually  associated  with  manu- 
facturing, for  it  is  here  that  its  worst  evils  are  manifested. 

There  is  no  doubt  about  the  evil  consequences  of  employ- 
ing children  in  industry.     From  whatever  stand-  j^^  ^^^ 
point   the  problem  is   regarded,    child  labor   is  conse- 
injurious.     It  is  harmful  to  the  child,  to  family  1"®°*^®^- 
life,  to  society,  and  to  the  industrial  product. 

On  the  physical  side  hard  labor  is  injurious  to  young 
children  because  their  bodies  are  still  developing.  Through 
expression,  the  body  of  the  growing  child  is  developed  most 
surely  and  most  completely.  The  originalities  of  a  child 
"  arise  through  his  action,  struggle,  trial  of  things  for  him- 
self and  in  an  active  way."  But  the  child  of  Effect  on 
twelve  or  fourteen  who  stands  at  the  machine  ^'^^'^h^^<^- 
tying  threads  for  eleven  hours  a  day  is  not  growing  through 
expression.  He  is  being  narrowed  by  an  unvarying,  mo- 
notonous impression.  He  is  losing  the  opportunity  for  the 
spontaneous  expression  of  the  new  life  that  comes  only 
through  play. 

From  a  mental  standpoint,  child  labor  is  a  process  of 
mind-stunting.  First,  the  child  is  removed  from  the 
possibility  of  an  education.  He  is  taken  from  the  school  and 
phiced  in  the  factory,  where  he  no  longer  has  an  opportunity 
to  learn.  Then  he  is  subjected  to  monotonous  toil  for  long 
hours,  until  his  mind  is  dwarfed  into  the  familiar  form  of  the 
unskilled  workman. 

The  moral  effects  of  child  labor  are  also  bad.  Entering 
the  workroom  with  adults  of  all  types  of  morality  and  im- 


io6  Elements  of  Economics 

morality,  the  child  ceases  to  be  a  child  in  knowledge  while 
it  is  still  a  child  in  ideas.  There  is  no  home  influence  or 
school  influence  to  ward  off  the  dangers,  no  mother  or  teacher 
to  point  out  the  hidden  rocks. 

The  effects  of  child  labor  on  family  life  are  obvious.  In 
many  localities  in  the  South,  where  industry  is  developing 
Effect  on  foi"  the  first  time,  the  children  work  in  the  mill 
family  life.  y^{i\i  their  parents.  If  either  parent  stays  at 
home,  it  is  frequently  the  father.  Under  these  circumstances 
the  mother  has  no  opportunity  at  home  to  maintain  a  fam- 
ily standard.  Neither  in  their  parents  nor  in  their  homes 
do  the  working  children  see  those  qualities  which  make  the 
home  the  ideal  of  human  happiness. 

The  low  wages  of  child  workers  add  little  to  the  family 
income.  It  is  no  uncommon  tiling  to  find  children  working 
for  two  or  three  dollars  a  week.  As  late  as  1902  the  Anthra- 
cite Strike  Commission  found  one  girl  who  was  given  a 
dollar  and  eighty  cents  for  sixty  night  hours  of  work. 

It  is  equally  clear  that  child  labor  injures  society.  By 
making  of  the  boy  an  unskilled  worker  incapable  of  earning 
large  means  and  by  making  of  the  girl  a  woman  incapable 
of  becoming  a  strong  normal  mother,  child  labor  inevitably 
tends  to  undermine  social  life.  By  throwing  the  boy  out 
Effect  on  upon  the  world  too  early  in  life  and  making  him 
society.  fg^^.^    j^g    responsibilities,    child    labor    promotes 

delinquency.  The  inmates  of  houses  of  correction  were 
usually  working  boys  when  they  were  arrested.  The  school- 
boy is  almost  a  neghgible  factor  there.  Both  family  and 
individual  life  are  distorted  by  child  labor. 

Finally  child  labor  affects  the  product  of  industry.  The 
treasurer  of  the  Alabama  City  Cotton  Mill  wrote  to  his 
agent :   ''  Every  time  I  visit  this  mill,  I  am  impressed  with 


Some  Labor  Problems  107 

the  fact  that  it  is  a  great  mistake  to  employ  small  help 
in  the  spinning  room.  Not  only  is  it  wrong  from  a  humani- 
tarian standpoint,  but  it  entails  an  absolute  Efect  on 
loss  to  the  mill."  Child  labor  is  thus  wasteful  f'^' product. 
to  industry.  ^Manufacturers  ever^^where  are  being  forced  to 
this  viewpoint.  Child  labor  is  undoubtedly  cheap  labor,  but 
the  product  is  cheaper  than  the  labor  involved  in  its  creation. 

Consequently,  from  every  standpoint,  child  labor  is  un- 
desirable.    It    decreases    family    and    social    welfare    and 
lowers  the  standards  of  the  future  citizen  as  well  as  of  the 
industrial  processes  in  which  it  exists.     In  view  Regulation 
of  these  disastrous  effects  of  child  labor,  numer-  of  child 
ous  laws  have  been  passed  which  aim  to  exclude 
from  work  children  under  fourteen  and  to  safeguard  the 
working  lives  of  children  from  fourteen  to  sixteen. 

Women  Workers.  —  Another  problem  of  growing  impor- 
tance is  that  of  women  in  industry.  A  half  century  ago 
woman  played  an  insignificant  role  in  industrial  life  ;  to-day 
there  is  not  an  important  branch  of  industry  where  she  is 
not  found.  In  1900  there  were  about  five  miUion  women 
employed  in  all  forms  of  gainful  occupations  in  the  United 
States. 

The  causes  of  this  advent  of  women  into  industry  are 
obvious.     First  of  all,  the  minute  subdivision  of  labor  has 
given  rise  to  such  a  degree  of  specialization  that  there  are 
innumerable  small  operations  that  women  can  Causes: 
easily  perform.     For  example,  a  girl  may  paste  ^,j,|)"J,^^,-^„ 
corners  on  paper  boxes,  or  stamp  out  pieces  of  oj  labor. 
paper  to  make  Christmas  cards.     Without  previous  training, 
she  will,  in  a  short  time,  learn  to  manage  a  machine.     At 
first  her  efficiency  will  not  be  high,  but  she  will  earn  at  least 
enough  to  keep  body  and  soul  together. 


io8  Elements  of  Economics 

Women,  having  only  themselves  to  support,  are  wiUing 

to  accept  a  much  lower  wage  than  men.     Therefore,  when 

they  enter  industries  in  competition  with  men,  the  latter 

are  frequently  forced  out  altogether.     For  ex- 

TjOIVCT  ivqscs 

ample,  men  formerly  rolled  cigars  at  the  rate  of 
seventy-five  or  eighty  cents  a  hundred.  Now  the  same 
labor  is  performed  by  girls  at  the  rate  of  thirty-five  or  forty 
cents  per  hundred. 

The  most  potent  cause  of  woman's  entering  industry, 
however,  is  found  in  her  loss  of  home  employment.  For- 
merly women  had  so  much  to  do  at  home  that  their  time 
was  fully  occupied.  Spinning,  weaving,  the  manufacture 
Loss  of  home  of  clothiug,  and  the  preparation  of  foodstuffs,  all 
employment,  engaged  their  attention.  But  the  seat  of  these 
operations  has  now  been  removed  to  the  factory.  Very  httle 
sewing  is  now  done  in  the  home,  and  the  cooking  is  decreas- 
ing rapidly.  Cleaning  is  the  only  part  of  "  woman's 
sphere  "  left  her;  it  is  small  wonder,  then,  that  she  goes  to 
the  factory  to  escape  this  drudgery. 

As  to  the  advisabihty  of  woman's  entering  industry, 
opinion  is  divided.  Those  who  are  opposed  to  this  tendency 
point  out  that  the  chief  function  of  woman  is  to  be  a  home 
Arguments  maker  and  to  bring  up  her  children  properly; 
vfomen  ^^^^  ^^^  work  still  engages  enough  of  her  time 

working.  to  prevent  her  from  undertaking  outside  employ- 
ment ;  that  factory  labor  injures  women,  and  through 
them,  their  offspring;  and  that  finally  the  presence  of 
women  in  industry  cuts  down  the  wages  of  men. 

On  the  other  hand,  those  who  are  in  favor  of  this  tend- 
ency take  the  stand  that,  because  of  the  development  of 
the  factory  system,  there  is  comparatively  Httle  left  for 
women  to  do  at  home;    that,  because  skill  and  dexterity 


Some  Labor  Problems  109 

are  chiefly  required,  labor  is  not  injurious  to  women  physi- 
cally; that,  by  entering  industry,  women  are  Arguments 
made  independent  and  equal  to  men  so  that  they  ^  ^^^°^  °*- 
need  not  be  forced  into  unhappy  marriages;  and  that, 
finally,  it  is  not  fair  to  force  upon  woman  the  drudgery  of 
cleaning  and  cooking  which  constitute  so  large  a  part  of 
the  regular  housework. 

Unemployment.  —  The  problem  of  the  unemployed  is  a 
constant   one.     Unemployment  may  be  due   to 
personal  causes,  such  as  malnutrition,  sickness, 
and  accidents,  or  to  industrial  causes,  such  as  'industrial 
crises,  labor  troubles,  and  seasonal  and  casual  trades. 

That  malnutrition  is  a  very  real  cause  of  unemployment 
was  well  illustrated  in  England  during  the  winter  of  1907- 
1908.  An  unemployed  farm  colony  was  started  and  the 
unemployed  from  London  were  set  to  work  on  the  land. 
During  the  first  few  weeks  many  of  the  men  were  so  weak 
from  lack  of  food  as  to  be  unable  to  do  more  than  two  or 
three  hours'  work  a  day  and  that  of  the  poorest  sort. 
After  being  maintained  for  several  weeks  on  Personal 
good  food,  these  same  men  were  doing  high-class  <^<2«""- 
work.  Just  how  extensive  is  the  unemployment  caused 
by  sickness  and  accidents  we  have  no  way  of  knowing. 
That  sickness  and  accidents  exist  is  certain,  and  that  they 
cause  unemployment  is  obvious ;  but  thus  far  the  meager 
character  of  the  material  on  the  subject  will  not  permit 
more  than  a  bare  reference  to  them  as  factors  in  the  prob- 
lem. 

The  industrial  causes  of  unemployment  may  be  grouped 
under  the  head  of  seasonal  trades,  industrial  crises,  labor 
troubles,  and  casual  trades.  Seasonal  trades  are  common, 
and  they  inevitably  mean  unemployment.     For  example, 


no  Elements  of  Economics 

all  outside  construction  work  can  offer  employment  at  cer- 
tain times  of  the  year  only.  The  effects  of  industrial  crises 
and  labor  troubles  upon  unemployment  are  also  apparent. 
Industrial  A  chart  of  the  coal  industry  from  1890  to  1905 
causes.  shows  that  from  1895  to  1899  the  work  was  very 

slack  because  of  the  persistence  of  an  industrial  crisis,  while 
in  1902  because  of  the  coal  strike  of  that  year  the  anthra- 
cite mines  worked  only  one  hundred  and  sixteen  days,  — 
about  thirty-eight  per  cent  of  the  total  possible  working 
days.  A  very  frequent  cause  of  unemployment  exists  in 
certain  trades  known  as  casual  trades,  —  those  requiring 
labor  a  day  here  or  a  week  there,  but  never  regularly  or 
systematically. 

The  effects  of  unemployment  are  twofold.  In  the  first 
place,  the  unemployed  himself  is  affected.  Idleness  leads 
to  some  form  of  dissipation,  usually  drunkenness.  The 
unemployed,  in  his  attempt  to  secure  work,  may  use  freight 
trains  as  a  means  of  getting  from  place  to  place.  This 
happy-go-lucky  Uf e,  once  tasted,  proves  too  attractive ;  and 
the  laborer,  freed  from  all  restraining  influences,  soon  be- 
Effectsof  comes  a  confirmed  tramp.  If  he  is  a  skilled 
unempioy-  laborer,  the  unemployed  will  lose  his  "  knack  " 
^^^^'  of  work  ;   if  unskilled,  his  physical  strength.     In 

any  event,  this  idleness  will  be  a  drain  upon  his  resources 
and  cause  his  efficiency  to  be  lowered.  But  the  effects  of 
unemployment  do  not  cease  with  the  unemployed.  They 
extend  to  his  family.  The  irregular  life  of  the  father  com- 
municates itself  to  the  children ;  and  the  lack  of  food,  re- 
sulting from  a  lack  of  income,  means  malnutrition  for  the 
whole  family  group. 

No  definite  remedy  can  be  prescribed  for  unemployment. 
So  far  as  the  personal  causes  are  concerned,  some  relief 


Some  Labor  Problems  iii 

might  be  sought  in  sickness  and  accident  insurance.     This 

policy  is  pursued  in  many  European  countries. 

On  the  industrial  side,  the  key  to  the  situation 

is  found  in    industrial    stabiHty.     Interstate    employment 

bureaus,  and  government  work  provided  in  times  of  serious 

depression,  will  do  much  to  reheve  the  worst  features  of  the 

present  situation. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  is  the  chief  disadvantage  of  child  labor? 

2.  What  are  the  effects  on  children  of  early  employment  ? 

3.  What  effect  has  child  labor  on  the  adult  laborer  ? 

4.  Is  child  labor  necessary  to  the  production  of  captains  of  in- 
dustry ? 

5.  What  is  the  effect  on  children  of  keeping  them  away  from  work 
until  they  are  sixteen  ? 

6.  Who  is  the  chief  gainer  from  child  labor  ? 

7.  Who  is  the  chief  loser  ? 

8.  Arc  parents  responsible  for  child  labor  ? 

9.  To  what  extent  are  the  children  themselves  responsible  ? 

10.  Why  are  women  entering  industry  ? 

11.  Is  this  movement  justifiable? 

12.  Should  legislation  be  passed  to  protect  working  women? 

13.  Would  you  permit  your  wife  or  daughter  to  take  up  a  gainful 
occupation  ? 

14.  Is  the  frequently  made  statement  true,  —  "woman's  place  is  in 
the  home?" 

15.  Is  unemployment  necessary? 

16.  WTiat  is  the  English  system  of  labor  exchanges  ? 

17.  What  is  the  effect  of  unemployment  on  industrial  efficiency? 

18.  On  what  grounds  should  society  seek  to  prevent  unemploy- 
ment ? 

10-  Is  there  any  "right  to  work  "  ? 

20.  Should  the  government  guarantee  work  at  all  ? 

21.  On  what  ground  can  you  justify  governmental  interference  in 
any  of  these  problems  ? 


112  Elements  of  Economics 

REFERENCES 

The   Bitter  Cry  of  the  Children  —  John  Spargo. 

Labor  Problems  —  Adams  and  Sumner. 

National  ChUd  Labor  Committee  —  Proceedings  of  Annual  Meetings 

—  1906  to  date. 
The  Long  Day  —  Dorothy  Richardson. 
The  Woman  Who  Toils  —  Van  Vorst. 
Women  in  Industry  —  Edith  Abbott. 
Unemployment  —  W.  H.  Beveridge. 


CHAPTER  XIV 

Education  of  the  Worker 

I.  The  function  of  education 

1.  In  early  times 

2.  In  modern  times  : 

a.  The  changed  conditions 

b.  How  met  by  higher  education 

c.  How  met  by  secondary  education 

II.  Uniformity  in  elementary  education 

1.  Extent  of  uniformity 

2.  The  consequences : 

a.  "  School  mortality  " 
i6.' Illiteracy 

c.  Child  labor 

d.  Lack  of  preparation  for  life 

3.  The  remedy  —  differentiation  : 

a.  For  boys  and  girls 

b.  For  city  and  country 

c.  For  head  workers  and  hand  workers 

d.  For  different  trades 

4.  The  outlook 

The  most  potent  force  for  the  increase  of  efificiency  and 
the  promotion  of  welfare  is  education  —  the  motive  force 
of  civilized  society. 

The  Function  of  Education.  —  The  process  of  education 
is  continuous,       it  has  existed  in  one  form  or  in  early 
another  from  time  immemorial.     In  early  times  t""es. 
education  was  confined  largely  to  the  priesthood.     Later,  all 
classes    were    educated.     Egypt,    (ireece,    Rome,    historic 
I  "3 


114  Elements  of  Economics 

China,  —  all  furnish  excellent  examples  of  well-developed 
educational  systems  performing  definite  functions. 

Throughout  the  Middle  Ages,  education  was  based  on  the 

study  of  the  classics.     In  the  twentieth  century,  however, 

education  has  changed  materially.     Man's  interests  are  no 

In  modern      longer  Confined  to  one  group  of  subjects.     The 

mes.  study  of  Latin  and  Greek  fails  utterly  to  equip 

The  changed  ,  ^  -'  -i     i- 

conditions.  man  with  knowledge  that  will  help  him  to  solve 
the  problems  arising  from  the  development  of  modern  sci- 
ence and  from  the  growth  of  industry. 

The  institutions  of  higher  learning  have  been  the  first 
in  America  to  make  an  attempt  to  meet  these  changed  con- 
Eowmethy  ditions.  Realizing  the  tru  h  of  Herbert  Spen- 
higher  educa-  ccr's  position  that  the  object  of  education  is 
"  complete  living,"  these  institutions  have  in- 
corporated into  their  curricula  courses  which  have  a  direct 
bearing  upon  the  life  of  the  individual.  Schools  of  engi- 
neering, of  commerce  and  industry,  of  agriculture,  of  archi- 
tecture, and  of  like  character,  are  all  striking  examples  of 
this  tendency. 

This  tendency  to  prepare  individuals  for  practical  life  so 
that  they  may  be  given  the  basis  of  complete  living  may  be 
observed  also  in  secondary  education,  but  to  a  less  degree. 
How  met  by  ^^  addition  to  the  old  classical  high  school,  we 
secondary       now  havc  in  most  of  our  large  cities  high  schools 

education.  •,  i  ^  j.      •    '  •    ^  i  j-i 

With  manual  trammg,  commercial,  and  vocational 
courses.  Too  much  credit  cannot  be  given  to  those  pioneers 
in  this  movement,  who,  seeing  the  evolution  of  modern 
life,  have  attempted  to  make  the  educational  system  con- 
form to  its  needs. 

Uniformity  in  Elementary  Education.  —  It  is  in  primary 
education   that   this   modern   tendency  is  least  apparent. 


Education  of  the  Worker  115 

The  course  of  instruction  given  the  child  for  the  first  eight 
years  is  largely  traditional  and  generally  uni-  Extent  of 
form.  It  is  undoubtedly  true  that  a  change  uniformity, 
here  and  there  is  being  introduced,  but  the  underlying 
principle  remains  the  same.  The  primary  school  is  but  a 
ladder  to  the  high  school ;  the  high  school  leads  to  the 
college.  There  is  little  attempt  to  make  the  instruction 
fit  the  child's  individual  needs  and  his  own  position  in  life. 

While  it  is  true  that  this  uniformity  results  in  an  equality 
of  equipment  for  those  completing  the  first  eight  years  of 
school  life,  it  is  nevertheless  disastrous  to  those  The  conse- 
who  do  not  survive   the  rigidity  of  the  work.   ?"J°/"V 
Since   the   prescribed   course  is   distasteful,  the  mortality^ 
beginner  drops  out  of  the  race  before  it  is  fairly  begun. 
Striking  evidence  of  this  fact  is  found  in  the  high  percent- 
age of  elementary  "  school  mortahty." 

The  immediate  effect  of  this  school  mortality  is  ilhteracy. 
The  extent  of  illiteracy  in  the  United  States  is  not  gen- 
erally realized.  The  census  of  1900  enumerates  223,208 
white  children  between  the  ages  of  ten  and  fourteen,  born 
in  the  United  States,  who  could  neither  read  nor 

Ilhleracy. 

write.  The  same  census  bulletin  tells  us  that 
"  somewhat  more  than  one  tenth  (106.6  per  1000)  of  the 
population  at  least  ten  years  of  age  is  ilhterate."  The  im- 
portance of  this  statement  becomes  particularly  significant 
when  a  comparison  is  made  between  illiteracy  in  the  United 
States  and  in  European  countries.  Of  every  thousand  in- 
habitants in  Germany,  Norway,  and  Sweden,  one  is  illiter- 
ate ;  in  Switzerland,  three  are  illiterate ;  in  Denmark,  five ; 
in  Finland,  sixteen;  in  France,  forty-nine,  and  in  England, 
fifty-eight. 
Another  consequence  of  the  school's  inability   to  hold 


ii6  Elements  of  Economics 

children  because  of  its  uniform  curriculum  is  found  in  the 

existence  of  child  labor.     "  The  most  potent  reason,  in  my 

opinion,  why  children  are  in  the  factory  is  our 

Child  labor.  ,,       rr-i  •  ^  r 

school  system.  ihis  statement,  by  a  factory 
inspector  of  Louisiana,  voices  the  opinion  of  many  social 
workers  who  point  to  the  school  as  a  frequent  cause  of  child 
labor.  There  is  little  doubt  but  that  many  a  child  prefers 
the  work  of  the  factory  to  that  of  the  school. 

Finally,  the  effect  of  uniformity  in  elementary  education 
extends  to  a  lack  of  preparation  for  life.  Children  leave 
school  and  go  to  work  because  the  school  system  fails  to 
prepare  its  pupils  for  the  life  of  the  world.  Seven  eighths 
,    ,   ,  of  the  school  children  of  the  United  States  never 

Lack  of 

preparation  enter  the  high  school.  "  Yet,"  says  Dr.  Andrew  S. 
for  life.  Draper,  Commissioner  of  Education  in  New  York, 

"  one  who  goes  out  of  the  school  system  before  the  end,  or 
at  the  end,  of  the  elementary  course,  is  not  only  unprepared 
for  any  vocation  which  will  be  open  to  him,  but  too  com- 
monly he  is  without  that  intellectual  training  which  should 
make  him  eager  for  opportunity  and  incite  him  to  the  ut- 
most effort  to  do  just  as  well  as  he  can,  whatever  may  open 
to  him." 

What,  then,  should  be  done  to  make  the  school  system  more 
attractive  and  of  greater  service  to  the  average  boy  and 
girl?  The  answer  to  this  question  is  simple.  The  work 
The  remedy  should  be  differentiated  according  to  the  needs 
—  differen-  of  the  individual  and  of  the  community.  Differ- 
ent training  should  be  provided  for  girls  and 
boys,  for  city  children  and  country  children,  for  head  work- 
ers and  hand  workers,  and  for  workers  in  different  trades. 
Life  is  so  varied  that  no  one  training  is  suited  to  all. 

In  the  first  place,  there  is  no  doubt  that  sex  should  play 


Education  of  the  Worker  117 

a  part  in  determining  the  character  of  education.  While  it 
is  true  that  during  certain  periods  of  life  several  milhons  of 
women  are  engaged  in  industrial  pursuits,  woman,  never- 
theless, is  primarily  engaged  in  the  home.  Just  as  the  great 
majority  of  boys  will  grow  up  to  use  their  hands,  por  boys  and 
so  the  great  majority  of  girls  will  grow  up  to  be  s""^-^- 
wives  and  mothers.  It  is  perfectly  evident,  therefore,  that 
elementary  instruction  should  provide  one  kind  of  training 
for  home  makers  and  another  kind  for  breadwinners.  A 
system  of  education  which  fails  to  recognize  this  principle 
is  altogether  inadequate  to  meet  the  needs  of  modern  life. 

Likewise,  another  differentiation  is  equally  fundamental. 
The  training  of  boys  and  girls  in  the  city  should  differ  essen- 
tially from  the  training  of  country  boys  and  girls.  Educa- 
tion, primary  as  well  as  secondary,  should  bear  a  direct 
relation  to  the  adult  life  of  the  child.  City  con-  For  city  and 
ditions  are  so  totally  different  from  country  con-  <^ountry. 
ditions  that  each  set  of  conditions  demands  a  training  pecul- 
iar to  itself.  Industry  is  the  keynote  of  city  life  and  agri- 
culture the  basis  of  country  life.  Therefore,  the  training 
of  city  people  should  be  largely  industrial  and  that  of 
country  folk  agricultural. 

It  is  equally  obvious  that  in  the  city  different  training 
should  be  provided  for  head  worker^  and  hand  workers. 
In    general,    the   elementary    curriculum    makes  For  head 

•         1        r         1         1  1  T>    i.  workers  and 

provision  simply  for  head  workers.     But,   per-  ^.^^^^ 
haps,  three  fourths  or  seven  eighths  of  all  the   workers. 
boys  and  girls  who  go  through  city  schools  will  be  called 
upon  to  do  work  with  their  hands.     An  education  which 
prepares  for  complete  living  will,  therefore,  make  provision 
for  training  in  some  form  of  hand  work. 
The  disappearance  of  apprenticeship  from  modern  life 


iiS  Elements  oj  Economics 

has  necessarily  widened  the  scope  of  industrial  training  in 

our  pubHc  school  system.     Save  in  a  few  trades, 

fmdef^''"^    such  as  plumbing,   the  old  apprentice  form  of 

training  has  passed  away.     As  a  result,  a  new 

duty  has  been  imposed  upon  the  school. 

If  this  differentiation  in  training  along  the  lines  just  in- 
dicated is  carried  out,  the  elementary  school,  by  losing  its 
uniformity,  will  be  brought  into  closer  harmony  with  the 
conditions  of  modern  Hfe.  It  is  only  proper  to  say,  how- 
ever, that  in  many  of  our  larger  cities  attempts  are  being 
made  to  bring  about  this  closer  relation  between  the  work 
of  the  school  and  the  work  of  Hfe.  For  example, 
the  introduction  of  sewing  and  cooking  and  of 
elementary  manual  training,  the  estabhshment  of  trade 
schools,  and  the  organization  of  vocational  courses  are  all 
hopeful  indications  of  a  recognition  of  this  principle.  Prep- 
aration for  life,  which  is  the  ideal  of  the  newer  education, 
will  ultimately  shape  the  work  of  the  elementary  schools, 
as  it  has  already  molded  the  work  of  the  high  school  and 
the  university. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  What  should  be  the  purpose  of  education  ? 

2.  Should  there  be  definite  connection  between  the  school  life  and 
life  in  the  world  ? 

3.  What  does  the  school  in  your  community  do  to  prepare  boys  for 
the  work  of  life  ? 

4.  What  life  preparation  does  the  school  furnish  for  girls  ? 

5.  Should    some    form    of  manual  training  be  introduced  in  all 
grades  between  the  kindergarten  and  the  high  school  ? 

6.  Should  the   public  school  include  domestic  science  training  for 
girls  ? 

7.  Is  universal  education  desirable  ? 


Education  of  the  Worker  119 

8.  What  advantages  and  disadvantages  would  accrue  to  the  coun- 
try if  free  education  were  abolished  ? 

g.  Would  it  be  wise  to  make  it  possible  for  everybody  to  secure  a 
college  education  ? 

10.  What  has  the  college  done  to  prepare  men  and  women  to  meet 
the  work  of  life  ? 

11.  What  is  the  economic  basis  for  education  ? 

12.  What  changes  would   you  suggest  as  prerequisites  to  a  more 
useful  educational  system. 

REFERENCES 

American  Education  —  A.  S.  Draper. 
The  Ideal  School  —  P.  W.  Search. 
The  Century  of  the  Child  —  Ellen  Key. 
Education  —  Herbert  Spencer. 
Laggards  in  our  Schools  —  L.  P.  Ayers. 


CHAPTER  XV 

Capital 

I.  Character  of  capital 

1 .  Its  importance  : 

a.  In  primitive  times 

b.  In  modern  times 

2.  Examples  and  definition  of  capital 

3.  How  wealth  may  be  consumed  : 

a.  Unproductively 

b.  Productively 

c.  The  final  consequences 

4.  Is  money  capital  ? 

a.  The  argument 

b.  The  newer  point  of  view 

5.  Capital  and  "  capital  goods  " 

II.  Origin  of  capital 

1 .  Capital  results  from  saving : 

a.  How  men  first  saved 

b.  How  the  habit  spread 

c.  How  savings  are  capitalized  : 
(i)  By  the  bank 

(2)  By  individuals 

(3)  By  corporations 

(4)  By  other  companies 

2.  Capital  may  result  from  efficiency 

III.  Kinds  of  capital 

I.  Difference  between : 

a.  Circulating  and  fixed  capital 

b.  Specialized  and  free  capital 


Capital  121 

2.  Danger  arising  from  : 

a.  Too  much  fixed  capital 

b.  Too  much  speciahzed  capital 

c.  Mismanagement  of  capital 

Land,  or  natural  resources,  and  labor,  or  human  energy, 
are  spoken  of  as  primary  essentials  in  production  because 
both  must  be  present  in  every  productive  operation.  The 
fish  in  the  stream  and  the  coal  on  the  mountain  side  cannot 
be  converted  into  wealth  if  there  are  no  people  to  catch  the 
one  or  to  pick  up  the  other.  In  the  same  way,  if  there  are 
no  fish  to  catch  and  if  there  is  no  coal  to  mine,  labor  will  be 
helpless  and  unable  to  produce  wealth. 

Character  of  Capital.  —  There  is,  however,  still  another 
factor  in  production.     While  land  and  labor  are  the  pri- 
mary essentials  in  any  productive  operation,   there  is  a 
secondary   essential,  —  capital.     Capital   is    spoken   of   as 
secondary  because  it  is  the  result  of  the  applica-   its  impor- 
tion  of  labor  to  natural  resources.     If  all  the   ^„^y^',„j-. 
capital  in  a  community  were  destroyed,  it  could  Hve  times. 
be  replaced  by  the  application  of  labor  to  land.     In  primi- 
tive   times    Httle,    if    any,    capital    really  existed.     What 
capital   we   now   have,    therefore,   is   the   result  of   man's 
utilization  of  natural  resources ;    it  is  the  offspring  of  land 
and  labor. 

Modern  industry,  however,  requires  the  presence  of  all 
three  factors.  To-day,  capital  is  as  essential  to  production 
as  land  and  labor.  All  modern  productive  operations  are 
capitalistic.  It  is  impossible  to  conceive  that  a  present-day 
productive  enterprise  should  be  carried  on  without  the  aid 
of  capital.  The  old  primitive  methods  have  /„  modem 
gone  forever.  The  spectacle  of  a  savage  catch-  '*"'"• 
ing  fish  from  the  brook  with  his  hands,  i.e.  without  capital, 


122  Elements  of  Economics 

has  no  modem  counterpart.  Hooks  and  nets,  the  products 
of  past  industry  created  by  appHcation  of  labor  to  land, 
have  now  become  as  essential  to  fishing  as  the  fish  and  the 
man  himself.  Therefore,  to  catch  fish,  i.e.  to  produce 
wealth  by  creating  utiHties  in  the  fish,  capital  is  required. 

This  is  one  of  a  thousand  ways  in  which  the  products  of 
past  industry  aid  man  in  producing  wealth.  Capital  is  an 
Examples  integral  element  in  industry.  Under  capital  are 
Son  of  ^'''"  included:  (i)  improvements  on  land;  (2)  roads, 
capital.  railroads,  telegraph  and  telephone  lines  ;  (3)  tools, 

machines,  and  mechanical  appliances ;  (4)  raw  materials, 
and  partially  manufactured  materials  to  be  used  in  later 
manufacturing.  All  these  constitute  wealth  and  all  help 
man  to  produce  additional  wealth.  Capital,  therefore,  may 
be  said  to  be  that  part  of  wealth  used  to  produce  more 
wealth. 

All  wealth,  then,  is  not  capital.  The  test  of  whether  or 
not  wealth  is  capital  is  the  way  in  which  it  is  used.  If  a 
Wealth  nation  or  an  individual  has  wealth  and  consumes 

consume  .     .^  unproductively,  then  this  wealth  is  not  capital. 

Unproduc-  r  j  ' 

lively.  The  man  who  dissipates  a  fortune  prevents  the 

employment  of  so  much  wealth  as  capital.  The  Pyramids 
of  Egypt,  although  representing  a  vast  outlay  of  materials 
and  labor,  are  not  capital.  Wealth  used  unproductively, 
whether  by  a  man  or  by  a  society,  is  not  capital. 

Wealth  may,  however,  be  consumed  productively.  The 
wealth  represented  by  railroads,  machinery,  and  buildings 
Produc-  is  capital  because  it  is  being  used  to  produce 
lively.  wealth.     Capital,   therefore,   depends   upon   the 

productive  use  of  wealth.  A  man  with  a  fortune,  instead 
of  squandering  it,  may  invest  it  in  a  business  and  thus 
convert  it  into  capital. 


Capital  123 

Every  individual  possessed  of  wealth  has,  therefore,  two 
choices  open  to  him.  He  may  use  it  productively  or  unpro- 
ductively.  If  through  extravagant  entertaining  and  sump- 
tuous luxury  the  man  uses  his  wealth  unproductively,  he 
has  nothing  to  show  for  it  except  gout  and  indi-  The  final 
gestion.  On  the  other  hand,  if  by  enlarging  consequences. 
his  plant  and  installing  new  machinery  he  uses  his  wealth 
productively,  he  not  only  keeps  his  original  wealth  but  adds 
to  it  through  production. 

One  of  the  first  questions  that  arise  in  a  discussion  of 
capital  is  the  query,  "  Is  money  capital?  "     Money  is  a 
product  of  past  industry  and  is  used  to  assist  in  is  money 
production.    In  order  to  prepare  it  for  circulation,  capital? 
the  mint,  equipped  with  expensive  capital,  has  expended  labor 
in  turning  the  bullion  into  its  present  form.      Furthermore, 
money  is  an  absolute  necessity  in  productive  operations. 
The  grocer  needs  money  to  make  change ;    the   The 
manufacturer  needs  it  to  pay  his  employees  on  '^numcnt. 
Saturday  night;    the  consumer  needs  it  to  purchase  bread 
from  the  baker  and  milk  from  the  dairy.     In  other  words, 
money  performs  a  very  essential  part  in  aiding  modern 
production.     If  money,  then,  is  the  product  of  past  industry 
and  performs  a  part  in  production,  it  must  be  capital. 

But  these  arguments  do  not  apply  to  all  money.  If  a 
man  were  to  receive  one  hundred  dollars  and  put  them  in  a 
stocking  behind  the  chimney,  this  money  would  not  be 
capital  because  it  would  not  be  assisting  in  production. 
It  is,  therefore,  fair  to  conclude  that,  as  with  other  commodi- 
ties, money  may  be  capital  or  it  may  not  be  capital.  The 
question  as  to  its  status  at  any  given  time  may  be  deter- 
mined only  by  knowing  whether  or  not  the  money  under 
consideration  is  being  used  to  assist  in  production. 


124  Elements  of  Economics 

This  statement  represents  the  older  view  of  capital, 
according  to  which  things  assisting  in  production,  whether 
directly  or  indirectly,  were  included  in  capital.  According 
to  the  newer  view,  in  order  to  be  capital  a  good  must  aid 
The  newer  directly  in  production.  The  ax  used  by  a  wood- 
poiniof  man  to  cut  down  a  tree  is  capital  because  it  is 
the  product  of  past  industry  and  is  being  used 
directly  to  assist  in  future  production.  On  the  other  hand, 
the  breakfast  eaten  by  the  woodman  assists  production 
only  indirectly  and  therefore  is  not  capital.  Economists 
are  accepting  the  latter  view  more  and  more,  so  that  money 
in  order  to  be  capital  must  assist  directly  in  productive 
operations,  —  that  is,  it  must  be  used  by  the  grocer  to 
make  change  or  by  the  employer  to  pay  wages. 

As  ordinarily  used,  the  term  "  capital  "  refers  to  a  more  or 
less  unchangeable  thing.  A  business  may  be  capitalized 
at  fifty  thousand  dollars  for  twenty  years.  During  this 
time,  however,  every  tool  and  machine  used  in  the  work 
may  have  been  replaced  by  new  ones.  The  "  capital  " 
has  remained  the  same,  but  the  "  capital  goods  "  —  the 
c  't  1  nd  "^^rious  elements  making  up  the  capital  —  have 
"  capital  been  worn  out  and  replaced.  In  this  fact  lies 
^°°  ^"  an  important  distinction.     Capital  is  the  intan- 

gible, continuous  thing  which  represents  the  total  value  of 
the  wealth-producing  products  of  past  industry  employed 
in  the  production  of  new  wealth.  Capital  goods,  on  the 
other  hand,  represent  the  individual  machines,  engines,  and 
other  tools  of  production  which  wear  out  in  the  course  of 
time  and  are  replaced.  Capital  is  a  constant  factor. 
Capital  goods  are  constantly  changing. 

Origin  of  Capital.  — ■  Even  within  comparatively  recent 
times  society  possessed  only  a  little  wealth,  nearly  all  of 


Capital  125 

which  was  needed  for  present  consumption.     In  such  times, 
therefore,  capital  could  be  accumulated  only  by  capital 
saving;    that  is,  instead  of   consuming  all    that  results  from 

°  '  '  .         saving : 

he  received,  a  man  abstained  from  consumption    ^^.^  ,„(,„ 
and  consumed  but  a  small  amount  of  what  he   first  saved. 
would  otherwise  have  used  up.     When  he  had  saved  suffi- 
cient wealth  through  this  abstinence,  he  used  it  to  secure 
some  new  tool,  such  as  a  windmill  or  a  sailboat,  that  would 
increase  his  power  to  produce  wealth. 

As  a  result  of  this  early  necessity  for  saving,  the  idea  was 
spread  through  the  whole  race,  by  means  of  the  schools, 
the  churches,  and  other  means  of  instruction.  How  the 
that  it  was  necessary  to  save.  The  consequence  habu  spread. 
of  this  education  was  the  development  of  a  strong  desire  to 
save.  To-day  this  attitude  is  perhaps  best  illustrated  by 
the  immigrant  who,  coming  to  the  United  States,  lives  on  a 
low  standard  in  order  that  he  may  have  a  competence  for 
his  old  age. 

Saving  has  thus  become  one  of  the  virtues,  yet  few  who 
save  really  understand  the  connection  between  saving  and 
capital.     A  child  receives  a  five-dollar  gold  piece  from  its 
grandmother  and  takes  it  home  in  great  glee.    ^^^  ^^^ 
Acting  on  the  advice  of  its  parents,  the  child  puts  ings  arc 
the  gold  piece  in  the  savings  bank  with  the  im- 
pHcit  belief  that  the  same  live-dollar  gold  piece  will  be  re- 
turned by  the  bank  whenever  the  demand  is  made  upon  it. 
But  the  bank  is  not  doing  business  in  this  way. 

The  bank  acts  as  a  loan  agent.  For  example,  a  pro- 
spective shoe  manufacturer  wishes  to  start  business,  and  the 
bank,  upon  being  furnished  proper  security,  lends  him 
fifty  thousand  dollars.  The  child's  five-dollar  gold  piece, 
together  with  hundreds  of  similar  deposits,  goes  to  make  up 


126  Elements  of  Economics 

this  loan.  With  the  money  or  credit  thus  secured  the 
manufacturer  begins  work.  He  builds  his  factory,  employs 
labor,  and  enters  the  shoe  market,  using  his  wealth  to 
produce  more  wealth.  At  the  end  of  a  year  he  has  done 
such  a  successful  business  that  he  has  made  fifteen  per  cent 
on  his  original  investment.  Out  of  this  fifteen  per  cent  he 
pays  the  bank  six  per  cent  for  the  use  of  its  money  or 
credit,  and  out  of  this  six  per  cent  the  bank  pays  the  child 
three  per  cent  or  fifteen  cents  for  the  use  of  his  five  dollars. 
In  this  way,  every  one  engaged  in  this  capitalistic  transac- 
tion has  been  the  gainer. 

Formerly  this  was  the  most  general  method  of  capitaliz- 
ing savings.  The  bank  acted  as  a  loan  agent  for  any  one 
who  wished  to  secure  money  and  who  could  furnish  reliable 
securities  as  collateral.  Its  loanable  funds  were  secured 
from  a  large  number  of  people  in  the  community,  each  of 
whom  wished  to  invest  a  small  amount  of  money,  but  no 
one  of  whom  was  sufficiently  well  off  to  be  able  to  lend  a 
large  sum  such  as  a  manufacturer  would  require. 

There  were,  to  be  sure,  cases  of  individuals  who  had  saved 
considerable  sums ;  and  when  Farmer  Wilhams  wished  to 
build  a  barn,  he  went  to  Farmer  Jones  and  borrowed  five 
hundred  dollars  on  a  mortgage.  But  this  was  an  uncertain 
way  of  carrying  on  an  enterprise.  Every  community  did 
not  have  a  Farmer  Jones.  Besides,  as  industry  grew,  neither 
five  hundred  dollars  nor  five  thousand  dollars  was  enough  to 
start  a  business.  Even  though  he  had  them,  no  person 
wished  to  lend  the  large  sums  necessary  to  begin  a  modern 
business  enterprise. 

To  meet  this  contingency  a  new  plan  has  recently  been 
developed  and  perfected.  As  a  result  of  this  new  method 
the  bank  is  often  ehminated  from  the  transaction.     The 


Capital  127 

shoe  manufacturer  decides  to  begin  business,  but,  instead  of 
going  to  the  bank  with  his  collateral  and  borrowing  fifty 
thousand  dollars,  he  incorporates  his  business;  that  is,  he 
secures  a  charter,  a  board  of  directors  is  appointed,  and 
stocks  and  bonds  are  issued.  These  stocks  and  bonds  are 
then  sold  to  the  people  in  the  community  who  wish  to  invest 
their  money  and  who  do  not  wish  to  engage  in  business 
themselves.  Thus,  without  the  intervention  of  the  bank 
and  with  the  bank's  profit  eliminated,  the  business  man 
secures  his  capital  directly  from  the  person  who  has  saved 
it  and  who  desires  to  invest  it.  At  the  same  time,  no  one 
is  called  on  to  invest  a  large  amount.  A  company  may  be 
capitahzed  for  ten  million  dollars,  but  an  individual,  by 
buying  merely  one  share,  needs  to  invest  only  fifty  or  one 
hundred  dollars  in  the  enterprise. 

Trust  companies,  insurance  companies,  and,  in  a  limited 
sense,  building  loan  associations  likewise  exercise  the  func- 
tions of  the  bank  and  act  as  loan  agents  for  investors  and 
borrowers;  but  in  recent  years  the  corporation,  by  selling 
stocks  and  bonds  and  paying  good  rates  of  interest,  has 
often  done  away  with  the  intermediary  banking  establish- 
ments and  gone  directly  to  the  individual  saver. 

When  wealth  is  scarce  and  living  precarious,  man  must 
scrape  and  save  in  order  to  put  something  aside  for  the 
future.  But  the  problem  of  capital  may  be  looked  at  from 
another  standpoint.  To-day,  when  wealth  is  plentiful, 
man's  ability  to  accumulate  capital  may  depend  capjtaimay 
not  so  much  on  saving  as  on  efficiency.  For  result  from 
example,  a  man  earning  ten  dollars  a  week  and  ®  ^lency. 
desiring  to  become  a  capitalist  has  two  courses  open  to  him. 
Fie  may  lower  his  standard  of  living  and,  by  consuming  less 
than  he  requires,  save  two  dollars  of  his  weekly  wages.     Or, 


128  Elements  of  Economics 

by  hard  work  and  additional  training,  he  may  increase  his 
efficiency  so  that  he  now  has  an  earning  capacity  of  twelve 
dollars  a  week.  This  extra  two  dollars  will  then  form  a 
fund  for  investment. 

Kinds  of  Capital.  —  We  have  yet  to  examine  the  different 
kinds  of  capital  and  the  problems  arising  from  them.  Capi- 
„.     ,  ,.        tal  is  described  as  "  circulating  "  or  "  fixed  "  and 

CtrculaHng  ° 

and  fixed  as  "specialized"  or  "free."  Circulating  capi- 
capttai.  ^^Y  is  capital  which  is  destroyed  by  a  single  use ; 

such  as  coal,  and  other  raw  materials.  In  contrast  to  this, 
fixed  capital  is  capital  which  can  be  used  for  a  considerable 
length  of  time  without  being  destroyed.  Examples  of  fixed 
capital  are  locomotives,  factories,  and  dump  carts. 

Again,  capital  which  is  molded  into  a  form  which  can  be 
used  only  for  a  particular  purpose  is  called  specialized  capi- 
tal. The  degree  of  speciahzation  may  be  great  or  moder- 
ate. For  example,  a  press  which  will  stamp  out  twenty- 
speciaiized  dollar  gold  pieces  is  an  extreme  form  of  specializa- 
capitai.  ^JQj^  because  there  are  but  a  few  places  in  the 

world  where  twenty-dollar  gold  pieces  are  stamped.  A 
crane  built  to  carry  fifty  tons  is  a  less  speciahzed  form 
of  capital.  The  crane  may  be  of  service  in  any  one  of 
several  industries,  while  the  coin  press  can  be  used  in 
but  one. 

In  contrast  to  this,  capital  is  said  to  be  free  when  it  exists 
in  a  form  that  may  be  used  in  a  large  number  of  industries. 
For  example,  pig  iron  is  free  capital.  It  can  be  converted  into 
carriage  springs,  bicycle  pedals,  drills,  car  wheels, 
and  hundreds  of  other  things.  The  ordinary 
machinist's  lathe  is  somewhat  specialized,  but  it  would  be 
considered  almost  free  in  contrast  with  a  lathe  made  to  turn 
a    ten-thousand-pound   shaft.     When  capital  is  usable  in 


Capital  129 

only  a  few  ways,  it  is  specialized ;  when,  on  the  other  hand, 
it  is  usable  in  many  ways,  it  is  free. 

One  of  the  great  problems  in  the  development  of  capital  is 
to  determine  how  much  capital  should  be  utilized  in  the 
form  of  hxed  and  how  much  in  the  form  of  circulating  capi- 
tal. Wealth  in  the  form  of  fixed  capital  cannot  of  course 
be  converted  immediately  into  circulating  capital,  and  the 
progress  of  the  community  may  thus  be  seriously  hampered 
by  the  lack  of  a  sufficient  amount  of  circulating  capital.  In 
the  early  part  of  the  nineteenth  century  an  enor-  Danger : 
mous  amount  of  wealth  was  converted  into  canals,   ^'"""Z '"" , 

'    much  fixed 

—  a  form  of  iLxed  specialized  capital.  Many  capuai. 
more  canals  were  built  than  the  traffic  warranted,  and  the 
wealth  sunk  in  many  of  the  canal  projects  was  completely 
lost.  Similarly,  one  of  the  causes  of  the  panic  of  1873  was 
the  conversion  of  a  large  amount  of  the  wealth  of  the  com- 
munity into  fixed  capital  in  the  form  of  railroads.  As  it 
turned  out,  too  great  a  proportion  of  the  country's  wealth 
was  put  into  this  form  of  capital  and  a  business  tie-up 
resulted. 

In  the  same  wa}^  if  too  large  a  proportion  of  capital  is 
turned  into  specialized  goods,  it  is  clear  that  industry  will 
suffer  because  of  a  lack  of  capital  which  can  be  diverted  into 
the  kinds  of  production  that  will  meet  the  changing  demands 
of  modern  society.     The  mobility  of  capital  in  the  United 
States,  that  is,  its  ability  to  change  from  one  From  too 
use  to  another,  is  shown  by  the  growth  of  the  '^'^^J^'"' 
automobile    industry.     In     1900    this    industry  capital. 
was  insignificant.     In  1908,  it  was  employing  a  capital  of 
8250,000,000  and  a  labor  force  of  eighty  thousand  employ- 
ees.    So  long  as  capital  is  sufficiently  mobile  to  flow  readily 
from  one  industry  to  another,  or  so  long  as  there  is  sufficient 


130  Elements  of  Economics 

wealth  to  form  capital  for  new  industries,   the  industrial 
conditions  in  the  community  are  sound. 

Since  modern  production  is  so  intimately  connected  with 
the  maintenance  of  capital,  the  question  of  its  management 
is  of  vital  importance.  Capital  is  brought  together  in  a 
*  .  corporate  form  by  a  great  aggregation  of  small 
management  investments.  If,  therefore,  this  capital  is  man- 
oj  capita  .  aged,  not  in  the  interest  of  stockholders,  but  in 
the  interest  of  officers  of  corporations,  the  whole  community 
will  be  in  danger,  because  the  loss  due  to  mismanagement 
will  fall  on  the  rank  and  file  of  industry  as  well  as  upon  the 
stockholders.  The  welfare  of  the  United  States  is  inti- 
mately dependent  upon  wisdom  and  integrity  in  the  man- 
agement of  capital. 


TOPICS  FOR   CLASS  DISCUSSION 

1.  Is  the  lead  pencil  with  which  you  take  notes  capital  ? 

2.  Is  a  child's  slate  capital  ? 

3.  Why  do  we  put  our  money  into  railroads  rather  than  into 
pyramids  ? 

4.  Is  money  capital  ? 

5.  Distinguish  accurately  between  natural  resources  and  capital. 

6.  Distinguish  between  wealth  and  capital. 

7.  Make  a  list  of  things  which  are  capital. 

8.  Are  the  following  capital :  pig  iron,  a  plow,  candy  on  the  shelves 
of  a  retail  dealer,  a  package  of  tobacco  belonging  to  a  laborer,  coal  ? 

9.  Does  capital  really  produce  ?     How  ? 

10.  Name  some  employment,  if  you  can,  in  which  labor  produces 
without  capital. 

11.  Are  securities  capital  ? 

12.  Why  do  Americans    look    contemptuously  upon  immigrants 
who  maintain  a  low  standard  of  living  in  order  to  save  ? 

13.  What  prompts  the  average  man  to  save  ? 


Capital  131 

14.  Is  it  better  for  a  man  to  maintain  a  high  standard  of  Hving  or 
to  save  by  lowering  his  standard  ? 

15.  Is  the  spender  or  the  saver  more  advantageous  to  the  com- 
m.unity  ? 

16.  Is  it  wise  to  increase  the  amount  of  capital  in  the  United  States  ? 

17.  Is  the  effective  desire  of  accumulation  stronger  in  the  United 
States  or  in  Central  America  ?     Why  ? 

18.  Distinguish  between  saving  and  hoarding. 

19.  Is  the  miser  or  the  spendthrift  the  more  useful  member  of 
society  ? 

20.  Speaking  of  the  Galveston  tlood,  a  writer  said:  "Fortunately, 
such  events  are  not  unmixed  evils.  Employment  will  now  be  found 
for  many  laborers,  and  this  benefit  should  not  be  forgotten  or  mini- 
mized by  us."     What  do  you  think  of  the  statement? 

21.  Is  a  football  celebration  which  results  in  the  breaking  of  $200 
worth  of  windows  advantageous  to  laborers  in  general  ? 

REFERENCES 

Principles  of  Economics  —  E.  R.  A.  Seligman. 
Introduction  to  Economics  —  H.  R.  Seager. 
Elements  of  Economics  —  C.  J.  Bulloch. 
Positive  Theory  of  Capital  —  E.  von  Bohm-Bawerk. 
Principles  of  Political  Economy  —  J.  S.  Mill. 
Capital  —  K.  Marx. 


CHAPTER  XVI 

The  Social  Surplus 

I.  Character  and  causes  of  the  social  surplus 

1.  Its  meaning 

2.  Its  causes : 

a.  Cooperation : 

(i)  How  methods  have  changed 
(2)  How  men  cooperate 

b.  Growth  of  population 

c.  Advance  of  civilization 

II.  Effects  of  the  social  surplus 


I. 

On  goods  and  prices 

2. 

On  education 

3- 

On  leisure 

4- 

On  recreation 

5- 

On  city  life 

6. 

On  saving : 

a.  How  the  viewpoint  has  changed 

b.  How  capital  is  now  created 

c.  Final  effect  of  the  social  surplus 

Character  and  Causes  of  the  Social  Surplus.  —  Intimately- 
connected  with  the  subject  of  capital  is  the  problem  of  the 
social  surplus.     In  fact,  the  social  surplus  is  one  form  of 
capital.     Just  as  man  by  individual  effort  may  produce  a 
surplus  of  goods  over  and  above  what  he  requires 

Its  meaning.    .,.,,.-  .  ,  ,         ..  • 

lor  daily  life,  so  society  through  cooperation  may 
produce  a  vast  surplus  of  goods  beyond  what  is  needed  for 
present  consumption.     This  surplus  of  products,  the  result 

132 


The  Social  Surplus  133 

of  social  rather  than  individual  action,  is  called  the  social 
surplus. 

The  individual  surplus  and  the  social  surplus  resemble 
one  another  in  that  both  are  intended  for  future  , 

Its  C9.11S6S  * 

use  ;   they  differ,  however,  in  their  origin. 

In  the  first  place  the  social  surplus  is  the  result  of  coopera- 
tion. Men  working  together  can  produce  vastly  more  than 
men  working  singly.  An  example  of  this  may  be  seen  in  the 
production  of  any  ordinary  commodity,  such  as  nails.  For- 
merly, each  nail  was  hammered  out  on  an  anvil 

-' '  ,         Cooperation, 

by  the  strong  arm  of  an  artisan ;  now,  a  long  wire 
runs  into  one  end  of  a  machine  and  comes  out  of  the  other 
in  the  form  of  a  finished  nail.  This  change  in  method  has 
had  a  marvelous  effect  on  the  output.  Fifty  years  ago  one 
man  might  hammer  out  a  hundred  nails  an  hour ;  to-day,  by 
changing  the  method  of  production,  a  swift-moving  machine 
produces  thousands  of  nails  in  the  same  time. 

This  change  in  method  is  based  on  cooperation.  Men 
have  worked  together  in  groups  and  then  these  groups  them- 
selves have  worked  together.  One  set  of  men  made  iron 
ore  into  steel ;  another  set  made  iron  and  steel  into  the  nail- 
making  machine ;  another  made  the  belts,  the  screws,  and 
the  gears ;  still  another  transported  these  products  to  one 
central  place,  the  factory;  and  now,  all  being  ready  and  a 
million  hands  having  assisted  in  bringing  the  steel  wire  and 
the  machine  together,  the  machine  produces  a  flood  of  nails 
which  find  their  way  into  the  home,  the  ofiice,  and  the  fac- 
tory. All  this  has  been  accomplished  simply  because  of  the 
principle  of  cooperation,  which  asserts  that  two  men  work- 
ing together  can  produce  more  than  twice  as  much  as  each 
man  working  separately. 

In  the  scconfl  place,  the  social  surplus  results  from  an  in- 


134  Elements  of  Economics 

crease  in  value  brought  about  by  social  action  in  the  form  of 
the  growth  of  population.  This  is  clearly  seen  in  the  case 
of  land  values.  The  value  of  land  rises  with  the  growth  of 
population  and  the  consequent  demand  for  land  and  its 
products.  The  lot  in  the  heart  of  a  populous  city,  or  the 
Growth  of  fertile  farm  feeding  a  growing  population,  is 
population,  many  times  more  valuable  to-day  than  fifty  years 
ago.  This  increase  in  value  has  been  brought  about,  not 
by  any  one  individual,  but  by  collective  action  of  the  whole 
social  group.  Therefore,  increased  land  values,  not  due  to 
individual  improvements  but  resulting  from  social  activity, 
are  social  values  and  constitute  a  part  of  the  social  surplus. 
While,  under  our  present  system,  they  may  enrich  individual 
landowners,  they  are,  nevertheless,  created  by  society. 

In  the  third  place,  the  social  surplus  is  due  to  advancing 
civiHzation.  No  invention  is  the  work  of  one  man,  but  the 
final  triumph  of  a  long  line  of  preceding  inventions.  Pro- 
cesses, systems  of  work,  railroads,  streets,  —  in  fact  the 
whole  fabric  of  society,  —  are  begun  by  one  generation  and 
Advance  of  handed  on  to  the  next.  Thus  each  succeeding 
civilization,  generation  enjoys  the  benefit  of  all  that  has  gone 
before.  Adding  its  own  contribution  to  this  heritage,  it  then 
passes  the  fabric  on  to  its  successor.  In  this  manner  the 
present  generation,  securing  vast  returns  from  a  system  to 
which  it  contributed  nothing,  is  enjoying  a  social  surplus. 

Effects  of  the  Social  Surplus.  —  The  most  direct  effect 
of  the  social  surplus  should  be  seen  in  the  quality,  quantity, 
and  prices  of  goods.  If  the  surplus  is  properly  distributed 
On  goods  throughout  society,  a  better  grade  of  goods  will 
an  prices.  -^^  produced  in  larger  quantities  at  cheaper 
prices.  For  example,  an  improved  process  of  making  shoes 
will  increase  the  output  and  lower  the  prices  of  shoes  to  the 


The  Social  Surplus  135 

advantage  of  all  who  wear  them.  This  process  of  better- 
ing quality,  increasing  amount,  and  decreasing  price  should 
continue  until  every  member  of  the  community  has  an  op- 
portunity to  secure  enough  economic  goods  to  maintain  an 
"  efficiency  "  standard  of  living. 

The  social  surplus  also  makes  itself  felt  in  other  less  direct 
ways.  For  example,  when  there  is  a  great  mass  of  social 
wealth  in  a  community,  society  may  offer  opportunities 
for  individual  improvement.  In  our  large  cities  oneduca- 
this  is  frequently  seen  in  the  great  number  of  *'°°- 
publicly  or  privately  endowed  lecture  halls,  Hbraries,  mu- 
seums, schools,  and  colleges,  which  open  to  the  average  man 
and  woman  lines  of  w^ork  hitherto  unattainable. 

Likewise,  the  social  surplus  makes  possible  wide  oppor- 
tunities for  leisure  and  recreation.  In  modern  life  leisure 
is  essential.  Leisure  does  not  mean  idleness,  but  time  in 
which  men  are  free  to  do  as  they  desire.  The  nail  machine 
has  its  advantage  in  increased  output ;    its  dis-    ..    ,  . 

°  ^  ,  On  leisure. 

advantage,  in  monotony   and   sameness.     Since 
his  work  is  largely  mechanical,   the  man  who  tends  this 
machine  learns  very  little.     Therefore,  if  such  a  man  is  to 
live  a  full  rounded  hfe,  he  must  have  leisure,  —  free  time 
in  which  to  walk  and  read  and  think. 

Through  the  shorter  working  day,  the  social  surplus  makes 
leisure  possible.  Surplus  wealth  results  in  surplus  time. 
Part  of  this  time  should  be  devoted  to  recreation,  —  to 
activities  of  a  relaxing  nature  which  require  neither  concen- 
trated thought  nor  monotonous  movement.  In  the  coun- 
try, recreation  is  easily  had;  but  in  the  city,  onrecrea- 
opportunities  for  recreation,  unless  created  in  t'°"- 
the  form  of  parks  and  playgrounds,  are  extremely  limited. 
Therefore,  the  social  surplus  should  provide  the  community 


136  Elements  of  Economics 

with  opportunities  which  will  prove  adequate  substitutes 
for  the  lost  recreation  facilities  of  country  and  village  life. 
Thus  it  is  evident  that  the  social  surplus  should  have  a 
decided  effect  upon  the  conditions  of  city  life.  This  wealth 
of  society  should  be  diverted  into  various  channels.  Not 
only  should  recreation  facilities  be  provided,  but 

On  city  life.  ■'  . 

the  city  should  be  made  beautiful.  In  this 
respect,  America  has  much  to  learn  from  Europe.  Public 
architecture  should  be  of  the  finest  character.  Streets 
should  be  widened,  trees  planted,  and  every  effort  made  to 
beautify  the  city. 

Finally,  the  social  surplus  will  have  a  marked  effect  upon 
On  saving :  the  habit  of  saving.  It  may  readily  be  seen  that 
How  view-      ^YiQ  existence  of  large  surplus  wealth  decreases 

point  has  °  '^ 

changed.  the  necessity  of  individual  saving.  In  fact,  so 
great  is  this  surplus  to-day  that  this  increased  wealth  has 
caused  the  emphasis  in  modern  life  to  be  shifted  from  saving 
to  efficiency. 

In  earlier  days,  when  wealth  was  scarce,  the  hard-fisted 

man  was  in  great  demand  because  it  was  only  through  stint- 

.  ,    ing  and  close  living  that  capital  was  amassed. 

How  capital         »  o  x- 

is  now  But  now  wealth  is    so  plentiful    that    it  is  no 

created.  longer  ucccssary  that  man  should  abstain  from 

consuming.  In  fact,  the  more  man  consumes  wisely,  the 
greater  will  be  his  productive  power.  Under  modern 
conditions,  capital  is  created,  not  by  learning  how  to  save, 
but  by  learning  how  to  produce  efficiently.  High  efficiency 
means  great  social  surplus ;  the  worker,  not  the  saver, 
produces  this  surplus. 

Yet  the  habit  of  saving  has  become  almost  a  racial  charac- 
teristic. Through  insurance  and  trust  companies,  through 
building  and  loan  associations,  and  through  investments  in 


The  Social  Surplus  137 

stocks  and  bonds,  people  are  saving  as  never  before.     This  is 
regarded  as  necessary  in  order  to  provide  for  a  final  effect 
"  rainy  day."     This  provision  for  the  future  may  of  the  social 

.  ,  surplus. 

be  made  as  a  result  of  abstmence  or  m  consequence 
of  increased  efficiency.  If  it  results  from  the  former,  the 
individual  is  depriving  himself  of  many  goods  needed  to 
maintain  his  productive  power ;  if  it  results  from  the  latter, 
he  is  not  depriving  himself  of  the  necessaries  of  hfe,  but  is 
accumulating  capital  by  means  of  his  increased  productive 
capacity.  The  social  surplus,  by  removing  the  necessity  of 
saving,  will  cause  men  to  realize  more  and  more  that  effi- 
ciency, not  parsimony,  is  the  key  to  individual  as  well  as 
social  welfare. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  What  is  "social  surplus"? 

2.  What  are  "  socially  created  values"  ? 

3.  What   relation  exists  between   cooperation    and    the    social 
surplus  ? 

4.  What  factors  lead  men  to  cooperate  ? 

5.  What  may  the  social  surplus  mean  to  the  individual?    To 
society  ? 

6.  What  is  the  relation  between  population  growth  and  the  social 
surplus  ? 

7.  How  may  the  social  surplus  affect  prices ?     Production? 

8.  What   relation   does   the   social   surplus   bear   to   education? 
Leisure  ?    Recreation  ? 

9.  What  was  the  old  concept  of  saving  ? 

10.  How  is  this  concept  altered  by  the  presence  of  a  large  social 
surplus  ? 

REFERENCES 

Evolution  of  Modern  Capitalism  —J.  A.  Hobson. 
New  Basis  of  Civilization  —  S.  N.  Patten. 
The  Theory  of  Dynamic  Economics  —  S.  N.  Patten. 
Product  and  Climax  —  S.  N.  Patten. 


CHAPTER  XVII 

American  Agriculture 

I.  Its  early  development 

1.  In  the  North 

2.  In  the  South  : 

a.  The  agricultural  conditions 
h.  The  effect  of  the  cotton  gin 

3.  In  the  West : 

a.  Effect  of  steam  engine 

h.  Effect  of  public  land  policy 

4.  Importance  of  machinery : 

a.  Early  agricultural  methods 

b.  Modern  improvements 

5.  The  final  result 

II.  Its  present  status 

1.  Importance  of  agriculture 

2.  Kinds  of  agriculture: 
a.  General  farming 

h.  Production  of  cereals 

c.  Stock  raising 

d.  Dairying 

e.  Fruit  growing 

/.    Market  gardening 

3.  Agricultural  training 

If  a  nation  is  rich  in  land  and  capital  and  has  an  efficient 
labor  force,  national  prosperity  and  individual  welfare  are 
attainable.  So  far  as  these  primary  requisites  are  concerned, 
the  United  States  is  unusually  fortunate.  What  use  has  the 
United  States  made  of  these  opportunities  ?  What  progress 
has  been  made  in  agriculture,  in  manufacturing,  and  in 
transportation  ? 

138 


American  Agriculture  139 

Early  Development  of  Agriculture.  —  In  a  previous 
chapter  the  fundamental  physical  differences  between  the 
North  and  the  South  were  indicated.  The  North-  in  the 
ern  environment,  with  its  thin  soil,  mineral  de-  North, 
posits,  and  cold  climate,  made  an  industrial  society  inevitable. 
The  Northern  colonists  turned  naturally  to  lumbering,  fish- 
ing, commerce,  and  later  to  mining  and  manufacturing.  To 
be  sure,  agriculture  was  also  developed,  furnishing  the  colo- 
nists with  grain,  live  stock,  fruit,  and  general  farm  products. 

The  South,  however,  was  the  natural  home  of  agriculture. 
Its  genial  cKmate  and  fertile  soil  led  the  early  colonists  to 
disregard  their  industrial  possibilities  and  turn  their  atten- 
tion to  the  cultivation  of  tobacco,  rice,  indigo,  and  in  the 
cotton.     The  institution  of  slavery  also  fostered  South: 
this  agricultural  development,  and,  in  turn,  was  cultural 
made  profitable  by  it.     While  slave  labor,  be-  conditions. 
cause  of  its  lack  of  intelligence,  was  not  particularly  suited 
to  the  growing  of  tobacco,  it  was  nevertheless  well  adapted 
to  the  cultivation  of  rice,  because  in  the  rice  swamps  slave 
labor  could  be  readily  worked  in  gangs. 

In  the  cultivation  of  cotton,  however,  slavery  received  its 
real  impetus.     In  1793  Whitney's  cotton  gin  made  possible 
a  mechanical  separation  of  the  cotton  seed  from  the  fiber. 
This  device  brought  about  the  growth  and  manufacture 
of  cotton  on  a  large  scale.     Cotton  cloth  ceased   ^^^^^  ^j- 
to  be  expensive  because  the  gin  cleaned  as  much  (he  coiton- 
cotton  in  a  day  as  had  been  cleaned  formerly  by 
hundreds  of  slaves.     In  this  manner,  cotton  became  the 
most  profitable   crop  of   the   Southern   planter   because  it 
could  be  grown  by  slaves  managed  on  the  gang  system. 
The  planters  increased  the  size  of  their  plantations,  added 
to  the  number  of  their  slaves,  and  extended  the  cultivation 


I40  Elements  oj  Economics 

of  the  cotton  crop  from  Cape  Hatteras  to  Texas.  The 
South  had  crowned  her  king. 

Meanwhile,  a  parallel  agricultural  movement  was  pro- 
gressing in  the  West.  From  the  opening  of  the  Northwest 
Territory  to  the  settlement  of  Washington  and  Oregon,  the 
land  west  of  the  Alleghany  Mountains  was  transformed  from 
a  wilderness  into  an  agricultural  region.  In  the  early  part 
In  the  of  the  nineteenth  century,  because  of  the  impossi- 

^^^*"  bility  of  transporting  grain  other  than  by  boat, 

sieayn  Settlements  could  be  made  only  along  the  rivers. 

engine.  'Q\xt,  with  the  advent  of  the  steam  engine,  land 

transportation  of  bulky  freight  became  possible  and  the 
West  was  peopled  and  developed  with  lightning  rapidity. 

Another  important  factor  in  the  development  of  the  West 
was  the  ease  with  which  public  lands  were  secured.  The 
federal  government,  abandoning  the  attempt  to  amass 
revenue  from  the  sale  of  these  lands,  made  every  effort  to 
induce  their  settlement  and  cultivation.  As  a  result  of 
Effect  of  ^^^^  policy,  the  pioneers  pushed  from  the  North- 
puhiic  west    Territory    into    "  Louisiana,"    "  Oregon," 

land  policy,  u  California  "  and  "  Texas."  They  cleared  the 
wilderness,  sold  their  claims,  and  then  moved  on  to  the  next 
bit  of  wild  land.  In  this  way,  the  great  acquisitions  of  terri- 
tory were  brought,  one  by  one,  under  human  control  and 
made  an  integral  part  of  the  agricultural  wealth  of  the  nation. 

No  factor  has  been  of  greater  importance  in  the  general 
Importance  development  of  American  agriculture  than  the 
of  ma-  use    of    machinery.     At    the    beginning   of    the 

VT*^^'  nineteenth  century,  the  farming  of  the  nation 
agricuiiurai  was  donc  with  tools  Httle  better  than  those 
methods.  ^^^^  ^^  ^^yQ  Romans  in  the  days  of  Julius  Caesar. 
Horses  were  scarce  ;  oxen,  expensive.     The  land  was  broken 


American  Agriculture  141 

up,  and  crops  sown,  cultivated,  and  harvested  chiefly  by 
hand  power.  But  this  kind  of  labor  was  slow  and  costly, 
and  Yankee  ingenuity  was  called  upon  to  devise  labor-sav- 
ing appHances.  As  a  result,  machinery,  for  the  first  time 
in  human  history,  came  to  play  a  leading  role  in  the  develop- 
ment of  agriculture. 

The  first  successful  agricultural    machinery  in  America 
was  built  during  the  second  quarter  of  the  nineteenth  cen- 
tury.    Since  that  time  it  has  been  improved  and  perfected. 
The  land  is  now  plowed  by  a  horse  plow  or  steam  plow ; 
the  grain  is  sown  by  a  drill  which  not  only  spreads   jj^^j^^,, 
the  fertilizer  but  covers  the  seed ;    the  crop  is  improve- 
cultivated  and  the  harvest  reaped  by  machines 
especially  designed  for  the  work.     The  country  boy  need 
no  longer  leave  the  back-breaking  farm  toil  for  the  stifling 
air  of  the  factory.     The  factory,  in  the  form  of  modern 
machinery,  has  come  to  the  farm  and  makes  bearable  the 
life  of  the  agricultural  laborer. 

Based  on  science  and  bulwarked  by  mechanical  appli- 
ances, American  agriculture  has  developed  rapidly  during 
the  nineteenth  century.  The  South  raises  cot-  The  final 
ton,  tobacco,  rice,  sugar,  fruit,  and  vegetables;  '■^s"^*- 
the  West,  grain,  fruit,  and  cattle ;  while  the  East  is  devoted 
to  general  farming  and  dairying  products.  In  two  hundred 
years  American  agriculture  has  grown  from  infancy  to 
splendid  maturity. 

Present  Status  of  Agriculture.  —  In    the  year  1909  the 
report  of  the  Secretary  of  Agriculture  showed  that  the  total 
farm  crops  of  the  country  were  valued  at  $8,760,000,000. 
No  other  products  compare  with  these  in  value ;  its  im- 
while,  likewise,  there  is  no  other  single  group  of  portance. 
industries   including  such   a   large   proportion    of   workers. 


142 


Elemejits  of  Economics 


The  dependence  of  labor  on  agriculture  is  seen  by  the  fact 
that  one  third  of  all  the  labor  employed  in  gainful  occupa- 
tions in  the  United  States  is  engaged  in  some  form  of  agri- 
cultural pursuit. 

For  convenience  of  discussion  this  occupation  may  be  di- 
Kinds  of  vided  into  the  following  lines  of  work  :  (i)  general 
agriculture:  farming;  (2)  production  of  cereals;  (3)  stock 
raising;  (4)  dairying;  (5)  fruit  growing;  (6)  market  gar- 
dening.    Each  of  these  will  be  briefly  examined. 

General  farming  is  an  occupation  usually  associated  with 
the  word  "  farmer."  The  general  farmer  raises  live  stock, 
has  a  small  dairy,  keeps  chickens  and  pigs,  raises  some 
General  fruit,  and,  if  near  a  market,  grows  a  small  amount 

farming.  q£  garden  produce.  As  "jack  of  all  trades  and 
master  of  none,"  he  fails  to  secure  a  large  or  valuable  prod- 
uct. For  this  reason  the  general  farm  is  being  rapidly  aban- 
doned in  favor  of  some  more  specialized  agricultural  work. 

Of  these  specialized  agricultural  pursuits,  the  production 
of  cereals  is  by  far  the  most  important.  The  enormous 
value  of  our  cereal  crops  may  be  seen  by  the  fact  that,  in 
Production  iQOQ,  the  total  valuc  of  the  4,700,000,000  bushels 
of  cereals.  ^f  ccrcals  produced  was  almost  three  billion  dol- 
lars, which  were  distributed  among  the  various  crops  as 
follows :  — 


Bushels 


Corn 
Wheat 
Oats 
Barley 
Rye  . 


1,720,000,000 

725,000,000 

400,000,000 

88,000,000 

23,000,000 


2,767,000,000 

725,000,000 

984,000,000 

165,000,000 

31,000,000 


American  Agriculture  143 

Stock  raising  is  an  industry  largely  confined  to  the  middle 
Southwest.  Cattle  are  raised  on  the  ranches  of  Arizona, 
transported  to  Kansas,  and  there  fattened  on  the  corn  lands. 
Then  they  are  taken  to  St.  Louis,  Omaha,  or  siock 
Chicago,  where  they  are  slaughtered,  converted  '■""^"s- 
into  various  packing  house  products,  and  shipped  finally  to 
all  parts  of  the  world.  On  the  Kansas  farms,  hogs  also  are 
fed  with  the  cattle,  fattened  on  the  corn,  and  then  shipped 
to  the  packing  houses. 

Dairying,  which  sometimes  accompanies  stock  raising, 
is  usually  confined  to  the  neighborhood  of  great  cities. 
The  necessity  of  producing  dairying  products  ^^.  .^ 
within  easy  reach  of  the  city  is  particularly  seen 
in  the  case  of  milk,  since  milk  cannot  be  transported  prop- 
erly for  a  greater  distance  than  one  hundred  miles.  Butter, 
however,  is  transported  from  the  Middle  West  to  all  parts 
of  the  country. 

Western  fruit  growing  was  originally  developed  to  furnish 
return  freight  for  the  emptied  refrigerator  cars.  The  great 
packing  houses  in  the  Middle  West,  shipping  their  products 
in  cars  to  the  Pacific  Coast,  were  unable  at  first  Fruit 
to  secure  for  them  any  suitable  return  cargo,  srowmg. 
However,  this  coast  was  peculiarly  suited  to  the  growing  of 
showy  fruit.  Thus  an  industry  was  soon  developed  which 
provided  the  empty  meat  cars  with  a  splendidly  paying 
return  shipment.  Then,  too,  apples  and  Tokay  grapes 
proved  to  be  good  paying  crops  and  were  rapidly  introduced 
from  Oregon  and  Southern  California.  Fruit  has,  of  course, 
always  been  grown  on  a  small  scale  in  all  agricultural  dis- 
tricts. 

Market  gardening  has  developed  at  a  phenomenal  rate 
during  the  past  quarter  century.     Originally,  farmers  grew 


144  Elements  of  Economics 

their  products  and  hauled  them  in  wagons  to  the  near-by 
towns.  Now,  spinach,  lettuce,  tomatoes,  and  other  green 
vegetables  are  grown  in  the  Southern  states  all  winter  long 
and  shipped  by  fast  freight  to  the  North.  These  products 
Market  Hot    Only  bring  reasonable   prices    to  'Southern 

gardening.  farmers,  but  they  provide  city  consumers  with 
green  vegetables  throughout  the  whole  year.  Meanwhile, 
hot-houses  have  been  constructed  in  the  North  in  which 
lettuce,  tomatoes,  cucumbers,  beans,  and  other  green  prod- 
ucts are  grown  with  considerable  profit.  The  rapid  increase 
of  city  population  has  thus  been  followed  by  the  develop- 
ment, all  along  the  Atlantic  seaboard,  of  market  gardening 
on  a  large  scale. 

During  the  nineteenth  century  the  American  people  have 
developed  and  perfected  so  many  new  agricultural  methods 
that  agriculture  itself  has  been  placed  on  the  basis  of  mod- 
ern industry.  In  bringing  about  this  result,  the  agricul- 
'tural  school  has  played  an  important  part.  Formerly,  the 
Agricultural  farmer  was  an  untrained  man.  The  knowledge 
training.  ]^g  possessed  was  inadequate  and  traditional. 
To-day,  however,  on  the  farms  of  the  middle  and  far  West 
there  are  from  fifteen  to  twenty  thousand  college  graduates. 
These  men  are  trained  in  the  modern  science  which  has 
revolutionized  agriculture  as  well  as  industry,  and  are 
equipped  with  a  knowledge  of  business  methods.  Upon 
men  of  this  character  depends  our  future  agricultural  prog- 
ress. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  What  causes  make  it  possible  for  the  percentage  of  our  popula- 
tion engaged  in  agriculture  to  decrease  steadily  ? 

2.  Why  have  many  people  left  the  farms  for  other  pursuits?  Is 
this  migration  likely  to  continue  ? 


American  Agriculture  145 

3.  Agricultural  experts  tell  us  that  by  using  present  amounts  of 
labor,  land,  and  capital  according  to  the  most  effective  plans  of 
agricultural  organization  already  known,  the  productive  efficiency 
in  this  industry  tould  be  doubled  in  a  year.  Why  is  this  not  done  ? 
What  forces  are  making  in  that  direction  ? 

4.  Why  should  the  forces  of  custom,  habit,  and  inertia  be  stronger 
in  agriculture  than  in  other  pursuits  ? 

5.  What  functions  do  you  think  the  agricultural  colleges  perform  ? 

6.  When  good  means  of  transportation  opened  up  markets  for 
the  produce  of  the  Western  pioneers,  what  changes  took  place  in 
agricultural  organization  ? 

7.  Under  what  conditions  are  we  apt  to  have  diversified  farming? 
Single  crop  farming  ? 

8.  Why  is  agriculture  in  Europe  more  intensive  than  in  the  United 
States  ? 

9.  If  you  were  compelled  to  take  up  agriculture  as  a  profession, 
what  branch  would  you  select  ?     Why  ? 

10.  Why  is  the  general  farmer  turning  more  of  his  attention  to 
specialties  ? 

REFERENCES 

Industrial  History  of  the  United  States  —  K.  Coman. 
Economic  History  of  the  United  States  —  E.  L.  Bogart. 
Elements  of  Agriculture  —  G.  F.  Warren. 
The  New  Earth  —  W.  S.  Harwood. 
Bulletins  of  the  Department  of  Agriculture. 
State  Agricultural  Department  Bulletins. 


CHAPTER  XVIII 

Soil  Fertility 

I.  How  the  soil  is  exhausted 

1.  Importance  of  fertiUty 

2.  Causes  of  soil  exhaustion  . 

a.  The  "  one  crop  "  system  . 

(i)  Examples  in  the  South 

(2)  Evil  results 
h.  Removal  of  ''  humus  "  : 

(i)  What  humus  is 

(2)  Why  it  is  essential 
c.   Waste  of  manure  : 

(i)  Examples  of  this  waste 

(2)  The  estimated  loss 

II.  How  fertility  may  be  restored 

1.  What  fertiUty  depends  upon 

2.  Means  of  soil  conservation  : 
a.  The  fertilizers : 

(i)  Chemical  fertilizers 

(2)  Animal  products 

(3)  Barnyard  manure 
h.  Cover  crops : 

(i)  Their  meaning 

(2)  When  and  how  grown 

(3)  Their  purpose 

(4)  Value  of  "  legumes  " 

3.  The  outlook 

How  the  Soil  is  Exhausted. —  Inseparably  connected  with 
the  subject  of  agriculture  is  the  question  of  soil  fertility.  It 
is  self-evident  that  without  fertility  soil  will  not  produce. 
But  in  spite  of   this  obvious  proposition,  little  attention 

146 


Soil  Fertility  147 

has  been  given,  until  recently,  to  the  conservation  of  soil 
fertility  in  the  United  States.     In  this  country  rich  soil  has 
been  so  abundant  that  man,  rather  than  spend  importance 
time  and  efifort  upon  the  conservation  of  a  par-  °^  fertuity. 
ticular  soil,  has  simply  moved  from  land  of  diminishing 
fertility  to  virgin  land. 

The  problem  of  soil  fertility  deserves  careful  considera- 
tion.    Through   carelessness   or   ignorance,    the   American 
farmer  has  unnecessarily  exhausted  the  fertility  causes  of 
of  the  soil.     This  exhaustion  has  resulted  chiefly  soil  ex- 
from  the  "  one  crop  "  system,  from  the  removal  of 
"  humus,"  and  from  the  waste  of  manure. 

The  one  crop  system  used  for  years  in  the  South  is  dis- 
astrous to  soil  fertility.     There,  the  same  piece  of  land, 
year  after  year,  was  used  for  growing  tobacco  or  cotton, 
and  when  the  planter  began  to  notice  a  decreased  return, 
he  moved  to  another  fertile  spot  which  he  likewise  devoted 
to  the  exclusive  production  of  one  crop.     This   ^f^^  ■.  y,^^ 
one  crop  system  has  two  evil  results.     In  the  f''"/' " 
first  place,  it  causes  the  soil  to  be  exhausted  of 
that  particular  element  required  to  grow  the  special  crop, 
so  that  eventually  the  cultivation  of  the  crop  on  that  land 
will  have  to  be  abandoned.     In  the  second  place,  the  par- 
ticular insect  enemies  and  bacteria  which  prey  upon  that 
crop  will   multiply  to  an  alarming  extent  and   ultimately 
prove  disastrous  to  its  cultivation. 

Again,  soil  exhaustion  has  resulted  from  the  removal  of 
"  humus."     Humus   is  decayed  vegetable   matter.     It    is 
essential  to  fertility  because  it  loosens  the  soil.    Removal  of 
permits  the  entrance  of  air  and  sunlight,  holds  " ''«""«" 
moisture,    and    fmally    furnishes    food   elements    for   i)lant 
growth.     The  exhaustion  (;f  humus  makes  soil  infertile. 


148  Elements  of  Economics 

Another  reason  for  soil  exhaustion  is  found  in  the  waste 
or  disuse  of  manure.  Sometimes  when  manure  piles  be- 
come so  large  as  to  be  in  the  way  a  farmer  simply  removes  his 
barn,  the  thought  of  using  the  manure  as  fertilizer  never 
entering  his  head.  In  the  "  abandoned  farms  "  of  New 
England,  however,  we  find  a  less  extreme  but,  unfortunately, 
more  general  instance  of  the  failure  to  utilize  manure 
Waste  of  properly.  For  generations,  the  New  England 
manure.  farmer  planted  his  crops,  —  hay  and  grain,  — 
cut  them,  fed  part  of  them  to  his  cattle  and  horses,  and 
shipped  the  remainder  to  town.  The  part  which  he  fed  to 
his  stock  was  returned  to  the  land  in  the  form  of  stable  ma- 
nure. But  this  manure,  while  piled  up  in  the  barnyard  for 
several  months  of  the  year,  was  depleted  of  its  liquid  portion 
and  of  that  portion  which  leached  out.  Thus  the  farmer 
each  year  returned  to  the  soil  less  than  he  had  taken  from  it. 

Some  idea  of  the  loss  entailed  by  this  waste  may  be 
gained  from  an  estimate  made  by  the  United  States  Depart- 
ment of  Agriculture.  This  department  estimated  that 
$250,000,000  represented  the  annual  loss  resulting  from  the 
failure  to  utilize  manure  efficiently.  This  loss  might  be 
prevented  simply  by  conducting  the  hquid  to  cement  pits 
on  cement  floors,  instead  of  permitting  it  to  run  off  into  the 
barnyard. 

In  these  various  ways,  therefore,  American  farmers  for 
many  years  past  have  been  exhausting  the  fertility  of  the 
soil,  —  rapidly  in  the  Southern  plantations,  slowly  in  the 
New  England  farms.  To-day,  as  evidence  of  this,  great 
stretches  of  land  in  both  districts  lie  unused. 

How  Fertility  may  be  Restored.  —  In  addition  to  scien- 
tific cultivation  and  proper  maintenance  of  humus,  soil 
fertihty  depends  chiefly  upon  the  presence  of  three  elements, 


Soil  Fertility  149 

—  nitrogen,  phosphorus,   and   potassium.     Of   these   three 
elements,  potassium,  which  is  found  generally  in  whatfer- 
clay  soils,  is  most  easily  obtained.     Nitrogen  is  tiiity  de- 

1      1  •    n        1  1  •  1        pends  on. 

secured  chiefly  through  ammonium  compounds, 
while  phosphorus  exists  in  bone  meal,  dried  blood,  guano, 
and  phosphate  rock.     The  maintenance  of  soil  conservation 
depends  largely  upon  the  presence  of  these  elements. 

To  maintain  these  essentials  in  the  soil  either  chemical 
fertilizers,   animal  substances,  or  barnyard  ma-  Means  of 
nure  may  be  applied  ;    or  finally,  green  crops  may  soil  con- 

scrvfltioD.  * 

be  plowed  under  to  act  as  fertilizer.     By  these 
different  means,  soil  fertility  may  be  conserved. 

Chemical  fertilizers,  such  as  nitrate  of  soda,  muriate  of 
potash,  and  acid  phosphate,  furnish  no  humus  and  provide 
chemical  elements  only.  On  the  other  hand,  fertilizers 
which  are  animal  products,  like  ground  fish,  bone  meal,  and 
dried  blood,  do  contain  organic  matter  which  decays  in  the 
soil.  Of  especial  value,  however,  are  stable  The  ferti- 
manure  and  green  crops  used  as  fertilizers.  '''''" 
These  possess  not  only  chemical  elements,  but  are  particu- 
larly valuable  for  their  humus.  While  stable  manure  is 
very  effective,  its  high  price  may  prevent  its  use  from  be- 
coming general.  On  the  other  hand,  green  or  cover  crops 
are  cheap  and  equally  effective. 

A  cover  crop,  or  a  green  manure  crop,  is  a  crop  sown  with 
the  avowed  purpose  of  plowing  it  under  when  it  reaches 
the  proper  stage.  The  farmer  sows  this  crop  in  the  late  fall 
and  lets  it  cover  the  ground  all  winter  because  he  knows  that 
something  is  bound  to  grow  on  his  land  during  Cowr 
the  late  fall  and  early  spring.  He  prefers  to  "''^^■ 
have  a  crop  which  he  may  use  for  purposes  of  fertilization, 
rather  than  a  mass  of  weeds  which  will  stand  in  the  w;iv  of 


150  Elements  of  Economics 

cultivation.  Then  too,  in  midsummer,  when  he  ceases  to 
cultivate  corn,  the  wise  farmer,  rather  than  let  weeds  get  a 
start,  plants  a  cover  crop  between  the  rows  of  corn.  These 
crops  not  only  protect  the  ground  from  the  fierce  rays  of 
the  sun  and  thus  help  it  to  hold  moisture,  but  they  also 
develop  a  good  growth  of  stalks  and  leaves  that  will  prove 
invaluable  as  green  manure  when  they  are  plowed  down 
and  left  to  rot. 

Of  these  cover  crops  the  most  valuable  are  "  legumes  " 
(peas,  beans,  clover,  vetch,  rape,  and  alfalfa),  on  the  roots 
of  which  appear  small  bulbous  formations  containing  am- 
monium compounds  from  which  nitrogen  is  derived.  These 
nodules  are  the  product  of  bacteria  which  turn  air  nitrogen 
into  soil  nitrogen.  Through  few  other  plants  can  the  free 
nitrogen  of  the  air  be  converted  into  nitrogen  that  may  be 
utiKzed  by  plants  themselves.  Thus,  these  legumes  not 
only  furnish  splendid  stalks  and  leaf  growths  for  humus, 
but  in  addition  fix  that  most  expensive  of  the  fertility  ele- 
ments, nitrogen. 

From  this  discussion  it  may  be  seen  that  in  America  the 
problem  of  soil  fertility  is  not  difficult  of  solution.  While 
it  is  true  that  many  sections  of  the  country,  through  igno- 
rance or  carelessness,  have  suffered  the  effects  of  soil  ex- 
haustion, it  is  equally  true  that  these  same  regions,  by  wise 
The  care  and  management,  may  be  restored  to  their 

outlook.  former  fertility.  It  is  likewise  evident  that  there 
is  no  necessity  whatsoever  for  the  soil  enjoying  present 
fertility  to  be  exhausted  of  its  fertile  qualities.  Wise 
care,  good  judgment,  and  increased  knowledge  are  the  fac- 
tors essential  to  a  successful  solution  of  the  problem.  The 
agricultural  school  to-day  attempts  to  supply  the  farming 
population  with  this  increased  knowledge. 


Soil  Fertility  151 

TOPICS   FOR   CLASS   DISCUSSION 

I.  What  is  "soil  exhaustion?" 
'  2.  What  does  it  involve  ? 

3.  Can  you  name  any  sections  where  the  one  crop  system  is  still 
extensively  employed  ? 

4.  What  method  does  nature  provide   for   the  maintenance  of 
humus  in  the  soil  ? 

5.  How  have  men  thwarted  nature's  means  of  humus  conserva- 
tion? 

6.  By  what  methods  can  manure  be  more  effectively  used  ? 

7.  Upon  what  elements  does  soil  fertility  depend? 

8.  Describe  a  piece  of  land  and  explain  how  you  would  restore  its 
fertility. 

9.  What  are  "cover  crops"  ? 

10.  What  advantages  arc  derived  from  their  use  ? 

11.  Explain  the  value  of  legumes  to  the  farmer. 

REFERENCES 

The  New  Earth  —  W.  S.  Harwood. 
How  to  Choose  a  Farm  —  T.  F.  Hunt. 
The  Elements  of  Agriculture  —  G.  Y.  Warren. 
A  Little  Land  and  a  Living  —  Bolton  Hall. 


CHAPTER  XIX 

The  Production  of  New  Species 

I.  The  process  of  selection 

1.  Artificial  selection : 

a.  Its  meaning 

b.  An  example 

c.  How  accomplished 

2.  Natural  selection : 

a.  Its  meaning 

b.  An  example 

c.  The  final  result 

II.  How  man  utilizes  selection 

1 .  In  changing  animal  life  : 

a.  The  transformed  hog 

b.  Different  types  of  horses 

c.  The  modern  hen  : 

(i)  The  change  effected 
(2)  The  advantage 

2.  In  changing  vegetable  life  : 

a.  The  new  variety  of  wheat 

b.  New  varieties  of  corn 

c.  New  fruits  and  vegetables 

3.  The  conclusion 

Another  problem  connected  with  agriculture  is  that  fur- 
nished by  the  conscious  production  of  new  forms  of  plant 
and  animal  life.  Formerly,  such  a  change  in  the  natural 
order  would  have  been  regarded  as  evidence  of  witchcraft, 
and  the  person  possessed  of  such  power  promptly  burned 

15^ 


The  Production  of  New  Species  153 

at  the  stake.     To-day,  however,  this  is  rightly  regarded  as 
one  of  the  triumphs  of  modern  agriculture. 

The  Process  of  Selection.  —  Selection  is  either  artificial 
or  natural.     Artificial  selection  is  the  process  by  which  men 
perpetuate  or  destroy  certain  desirable  or  unde-  Artificial 
sirable    characteristics    in    animals    and    plants.  s®^^<=**°'^  • 

,  .  .    ,  Meaning 

For  example,  the  cat,  belongmg  to  one  of  the  most  and 
ferocious  families  in  the  animal  kingdom,  was  ^^^^P^^- 
originally  fierce  and  wild.     To-day,  it  is  so  gentle  and  quiet 
that  it  loves  to  be  played  with  and  caressed.     It  has,  indeed, 
become  the  plaything  of  children. 

How  has  this  wonderful  transformation  been  accom- 
plished? Simply  by  a  process  of  artificial  selection.  For 
centuries,  man  has  not  permitted  any  but  the  gentlest  cats 
to  live.  In  this  manner,  the  quiet  and  docile  How  ac- 
cats,  generation  after  generation,  transmitted  '^om pushed. 
their  gentle  characteristics  to  their  kittens,  until  to-day  we 
have  the  domestic  pet  at  our  fireside.  By  a  similar  process 
other  domestic  animals  were  transformed  from  wild  into 
tame  creatures.  Man  selected  in  the  parents  those  quali- 
ties he  desired  in  the  offspring,  and  thus  determined  the 
character  of  the  coming  generation. 

In  natural  selection  man  plays  no  part.     Natural  condi- 
tions determine  those  that  are  to  survive,  and  their  quali- 
ties are  thus  transmitted  to  their  offspring.     For  example, 
in  the  wilds  of  India,  ferocity  is  essential  to  the  Natural 
cat  family.     Survival  depends  on  this  quality,  selection: 
Hence,  the  ferocious  tiger  survives,  while  the  less  ^nd  ""'^ 
ferocious  is  easily  killed  or  starves  to  death.     In  example. 
this  manner  a  rigorous  process  of  natural  selection  destroys 
the  gentle  and  perpetuates  the  fierce  qualities  required  in  the 
tiger. 


154  Elements  of  Economics 

By  the  process  of  natural  selection,  those  forms  of  life 
best  able  to  escape  enemies  in  their  particular  locality 
adapt  themselves  to  it,  and  survi\'e.  But  thousands  of 
The  final  Others,  not  so  well  adapted  to  their  environment, 
result.  g^j-g  yiied  in  their  struggle  for  existence.     A  good- 

sized  cod  lays  from  thirty  to  fifty  millions  of  eggs,  but  only 
a  few  of  those  that  are  hatched  ever  survive  to  adult  life. 
The  remainder  are  destroyed  by  the  cod's  enemies  either 
before  or  after  hatching.  Thus,  in  the  course  of  centuries, 
this  "  survival  of  the  fittest  "  produces  a  creature  adapted 
to  its  own  environment. 

Natural  and  artificial  selection  differ  in  one  fundamental 
respect.  The  former  is  unconscious ;  the  latter,  conscious 
and  deliberate.  Natural  selection '  occurs  unknowingly, 
without  the  intervention  of  any  conscious  will,  while  artifi- 
cial selection  takes  place  with  a  deliberate  end  in  view. 
The  cod's  young  are  accidentally  destroyed  by  their  ene- 
mies searching  for  food,  without  the  thought  of  developing 
a  strong  type  of  codfish.  On  the  other  hand,  the  fierce, 
wild  cats  are  deliberately  killed  by  man  in  order  to  produce 
a  quiet,  gentle  type  of  cat. 

How  Man  utilizes  Selection.  —  Through  artificial  selec- 
tion men  have  changed  and  are  still  changing  various  forms 
of  life  coming  within  their  power.  This  may  be  seen  both 
in  the  animal  and  vegetable  world.  Southdown  sheep  and 
the  two-minute  trotter  are  products  of  artificial  selection 
as  much  as  the  thornless  cactus  and  the  Burbank  potato. 

Artificial  selection  has  revolutionized  animal  life.  A 
In  animal       striking  instance  of  this  is  seen  in  the  transforma- 

life  I 

The  trans  ^^'^^  ^^  ^^^  ^^^S-  The  wild  mountain  hog,  with 
formed  hog.  his  sharp  back,  raw-boned  body,  and  long  legs, 
was  little  suited  to  the  pork  market.     The  hog  breeder, 


The  Production  of  New  Species  155 

therefore,  proceeded  to  change  this  scrawny,  razorback  crea- 
ture into  a  fat,  edible  animal.  This  he  did  by  selecting  from 
each  generation  the  short-legged,  fat,  quiet  hogs  to  be  the 
parents  of  the  next  generation.  In  this  manner,  after  the 
process  had  continued  many  years,  a  type  of  hog  satisfying 
all  the  requirements  of  the  market  was  produced. 

So  with  horses  this  same  process  of  selection  has  been  car- 
ried on.     Some  horses  must  be  fast,  others  suited  to  light 
work,  and  still  others  capable  of  drawing  the  Diffg^gnt 
heaviest  loads.     In  response  to  these  demands,  types  oj 
horse  breeders  have  finally  developed  fast  race 
horses,  all-around  work  horses,  and  draught  horses  of  great 
bulk  and  strength. 

Chickens  have  likewise  been  transformed.  The  hen,  in 
her  wild  state,  laid  a  few  eggs  a  year  and  hatched  them 
all.  The  modern  hen  —  the  product  of  care-  jhe  modem 
ful  artificial  selection  —  lays  ten  times  as  many  ^^'^■ 
eggs  in  the  course  of  a  year  and  may  even  be  induced  to 
refrain  from  setting.  The  value  of  this  increased  egg  sup- 
ply is  obvious.  The  cost  of  keeping  the  chickens  remain- 
ing the  same,  the  additional  eggs  furnish  the  farmer  with 
increased  profits. 

Recently,   however,    the   most   remarkable   results   from 
artificial  selection  have  been  attained  in  the  development 
of    vegetable    rather    than    of    animal    species,   in  vege- 
Students  of  plant  life,   during   the    later    nine-  table  hfe: 
teenth  century,  have  created  many  new  vegetable  types. 

Consider,  for  example,  the  work  of  the  government  experi- 
ment stations  in  developing  a  new  variety  of  cereal  capable 
of  resisting  disease.  The  gravest  foes  of  the  farmer  during 
late  years  have  been  blight,  scale,  and  similar  forms  of 
plant  disease.     An  attempt  was  therefore  made  to  develop 


156  Elements  of  Economics 

a  species  of  wheat  that  would  not  succumb  to  blight.  Ex- 
periment after  experiment  was  made  with  this  end  in  view, 
and  men  were  sent  all  over  the  world  to  look  for  kinds  of 
The  new  wheat  that  would  resist  blight.  Such  a  type  of 
variety  of  wheat  was  cvolved.  At  the  same  time,  settle- 
ments were  being  made  on  the  dry  lands  of  the 
West,  where  the  rainfall  is  only  one  third  of  that  along  the 
Atlantic  plains.  Here,  the  land  being  fertile  and  the  water 
scarce,  a  kind  of  wheat  capable  of  resisting  drought  was 
produced.  Eventually,  by  careful  selection,  there  was 
further  developed  a  variety  of  wheat  not  only  requiring  Httle 
moisture,  but  also  comparatively  free  from  blight. 

The  corn  belt  in  the  Middle  West  furnishes  another  in- 
teresting example  of  the  results  of  selection.  The  manu- 
facturers of  corn  oil  desired  a  corn  containing  a  high  per- 
centage of  oil,  while  the  manufacturers  of  certain  corn  food 
^g^  found   a   low   percentage   of   oil   desirable.     To 

varieties  oj  meet  thesc  different  demands,  experiments  were 
made  on  a  certain  variety  of  corn  containing 
six  per  cent  of  oil.  As  a  result,  this  same  corn  in  the 
course  of  a  few  years  was  made  to  produce  one  variety 
containing  nine  per  cent  of  oil,  and  another  containing  two 
per  cent  of  oil. 

Through  the  same  means  the  splendid  market  tomato  is 
grown  from  a  weed  ;  the  luscious  Baldwin  is  the  descendant 
New  fruits  ^^  ^^^  thom  apple;  grains  are  produced  with 
and  qualities  hitherto  unknown  ;  and  Burbank  prom- 

vege  a  es.       .^^^  .^  ^j^^  future  a  scedlcss  strawberry. 

Artificial  selection  has  proved  one  of  the  most  potent 
The  forces    at     the    disposal    of    the    agriculturist, 

conclusion.     Through  it  he  has  been  enabled  to  revolutionize 
his  industry  and  to  place  upon  the  market  multitudes  of 


The  Production  of  New  Species  157 

new  products.  In  industrial  life,  through  the  domestication 
of  animals  and  the  gradual  development  of  beasts  of  bur- 
den, artificial  selection  has  exercised  an  equally  potent  in- 
fluence. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  What  is  selection  ? 

2.  Can  you  cite  any  local  instances  of  the  selective  process? 

3.  Distinguish  between  natural  and  artificial  selection. 

4.  What  is  the  purpose  of  artificial  selection  ? 

5.  Name  some  of  the  important  contributions  of  artificial  selection 
to  agriculture ;  to  civilization. 

6.  How  does  the  modern  farmer  utilize  selection  ? 

7.  Explain  the  transformation  of  wild  into  domestic  animals. 

8.  What  may  selection  accomplish  in  the  vegetable  world  ? 

REFERENCES 

The  New  Earth  —  W.  S.  Harwood. 
The  Origin  of  Species  —  Charles  Darwin. 
Principles  of  Biology  —  Herbert  Spencer. 
Heredity  —  J.  A.  Thompson. 


CHAPTER  XX 

American  Industry 

I.  Early  American  industry 

1.  Kinds  of  industries 

2.  The  colonial  policy: 
a.  Its  meaning 

h.  How  applied  by  England 

c.  How  carried  out: 

(i)  By  restrictions  on  machinery 

(2)  By  regulating  commerce 

(3)  By  restricting  manufacturing 

d.  Effects  of  this  policy 

3.  Condition  after  the  war: 
a.  The  new  danger 

h.  The  proposed  remedy 

II.  Later  character  of  American  industry 

1.  Inventions : 

a.  Their  importance 
h.  Their  efTects : 

(i)  On  mechanical  power 

(2)  On  transportation  facilities 

(3)  On  labor-saving  devices 

2.  The  "factory  system  "  : 
a.  Its  essential  features 
h.  Its  advantages : 

(i)  In  production 
(2)  In  consumption 
c.  Its  disadvantages 

Another  field  which  has  developed  rapidly  in  the  past  few 
decades  is  that  of  industry.     Not  only  in  agriculture,  but 

is8 


American  Industry  159 

also  in  manufacturing,  has  America  realized  her  latent  pos- 
sibilities. 

Early  American  Industry.  —  The  American  colonists 
had  open  to  them  three  kinds  of  industries.  In  the  first 
place,  they  might  engage  in  the  primary  industries,  such  as 
fishing,  hunting,  lumbering,  mining,  and  quarrying,  —  all 
of  which  are  concerned  in  converting  natural  resources  into 
economic  goods.  In  the  next  place,  they  might  engage 
in  the  secondary  industries,  which  work  on  the  raw  Kinds  of 
or  semi-finished  product,  such,  for  example,  as  »°<i"stries. 
shipbuilding,  iron  or  textile  manufacturing,  and  the  manu- 
facture of  woolen  goods,  hats,  clothing,  and  similar 
articles.  Finally  the  American  colonists  might  engage  in 
another  form  of  industrial  activity,  —  commerce.  The  harbor 
facilities,  the  proximity  of  the  West  Indian  markets,  to- 
gether with  the  development  of  manufacturing  and  of  agri- 
culture, afforded  every  opportunity  for  an  easy  exchange  of 
commodities. 

Had  the  colonists  been  content  to  engage  only  in  the  pri- 
mary industries,  involving  the  production  of  raw  material, 
no  clash  with  England  might  have  occurred.     According  to 
the  general   colonial   policy  of   the  seventeenth  jj^g 
century,  colonies  existed  for  the  good  of  the  mother  colonial 
country.     It   was   their   function  to  supply  raw    ,, 

•'  ri    J  Meaning 

materials  for  the  home  country  to  manufacture  and  appu- 
and  sell  back  to  them.  England  attempted  to  "'""*• 
apply  this  theory  by  requiring  the  colonies  to  produce  only 
raw  materials,  by  transporting  these  raw  products  in  her  own 
ships  to  be  manufactured  at  home,  and  by  carrying  back 
in  her  own  vessels  the  finished  products  to  be  sold  in  Amer- 
ica. In  this  way,  the  English  manufacturer  and  merchant 
made  several  intermediary  profits. 


i6o  Elements  of  Economics 

To  carry  out  this  policy  effectively,  England  resorted  to 
many  devices.  Since  manufacturing  involved  the  use  of 
jjow  machinery,    the   home   government   passed  acts 

carried  out.  prohibiting  the  exportation  of  machinery  to  the 
colonies.  But,  despite  this  discouragement,  the  colonists 
journeyed  to  the  English  factories,  imported  some  labor, 
brought  in  an  occasional  drawing  or  pattern,  and,  above 
all,  proceeded  to  invent  their  own  implements.  In  this 
manner,  colonial  industry  and  commerce  grew  apace  and 
evoked  the  wrath  of  the  mother  country. 

To  accomplish  its  end,  ParHament  also  passed,  during  the 
middle  of  the  seventeenth  century,  the  Navigation  Acts, 
regulating  and  restricting  commerce.  Under  these  acts, 
the  monopoly  of  English  trade  was  to  be  held  by  English 
ships  and  English  subjects.  As  the  colonists  began  ship- 
building at  an  early  date,  these  acts  struck  a  hard  blow  at  a 
rising  American  industry  and  a  growing  American  commerce. 
Then,  again,  these  Navigation  Acts  enumerated  certain  ar- 
ticles to  be  exported  from  the  colonies  to  Great  Britain  only. 
Later  on,  other  acts  were  passed,  all  of  which  were  intended 
to  limit  and  restrict  colonial  commerce. 

In  addition,  England  discouraged  American  industry  by 
passing  acts  forbidding  the  colonies  to  manufacture  cer- 
tain goods  produced  in  England.  This  prohibition  was 
particularly  severe  on  the  New  England  colonies,  where 
every  effort  had  been  made  to  encourage  industry.  The 
Woolen  Act  of  1699  prohibited  the  exportation  of  woolen 
goods  from  any  colony  to  a  foreign  country  or  from  one 
colony  to  another.  Later  on,  similar  restrictions  were 
placed  on  other  industries. 

The  colonists  petitioned,  threatened,  and  resorted  to  every 
possible  means  to  circumvent  the  law;    while  the  English 


American  Industry  i6l 

were  equally  insistent  and  determined  to  carry  out  their 
policy.  The  Northern  colonies  suffered  most  Effects  of 
severely  from  the  effects  of  this  narrow  policy,  ''"'  ^"'"'y- 
because  it  denied  the  inhabitants  of  this  region  their  logi- 
cal occupations,  —  shipbuilding,  manufacturing,  and  com- 
merce. Therefore,  from  an  economic  standpoint,  the  situ- 
ation was  critical  and  the  war  inevitable. 

While  the  Revolutionary  War  was  in  progress,  national 
industry    was    really    beginning.     The    English    blockade, 
following  the  declaration  of  war  and  continuing  throughout 
the  struggle,  forced  the  colonists  themselves  to  Condition 
manufacture.     But   when    peace    was    declared,  ^^^^^^^^ 

'-  war : 

American    industry    faced    a    new    peril.     For    The  new 
years,  European  manufacturers  had  been  stocking  '^<^«s«''- 
up  goods.     When  the  war  was  over,  these  goods  flooded 
the  American  market.     Handicapped  as  the  American  manu- 
facturers were  by  crude  machinery  and  high-paid  labor,  they 
were  unable  to  compete  with  their  foreign  rivals. 

To  meet  this  situation,  the  American  manufacturer  natu- 
rally turned  to  some  form  of  legislative  protection.     This- 
was  first  afforded  by  the  Tariff  Act  of  1789.     Soon  after, 
Alexander  Hamilton,  Secretary  of    the  Treasury,  made  a 
strong  plea  for  protection  in  his  famous  report  on  the  status 
of  manufactures.     In   this  report,  he   took   the   The  remedy 
position  that  "  customs  duties  "  must  be  levied  •^''"s^"- 
if  the  "  infant  industries  "  of  America  were  to  compete  suc- 
cessfully with  the  established  industries  of  Europe.     As  a 
result  of  his  recommendation,  the  rates  in  the  Tariff  Act  of 
1789  were  increased  in  1790,  and  again  in  1792.     In  this 
manner  was  inaugurated  that   policy  of  protecting  Amer- 
ican  manufactures,   which,  with  slight    interruptions,    has 
continuerl  to  the  present  day. 


i62  Elements  of  Economics 

Later  Character  of  American  Industry.  —  At  the  close  of 
the  eighteenth  century,  whatever  industries  existed  in  Amer- 
ica were  conducted  along  simple  lines.  To-day,  industry  is 
highly  organized  and  industrial  methods  are  extremely 
complicated. 

Without  the  inventions  of  the  last  one  hundred  and  fifty 
years,  men  would  still  be  working  singly  and  inefficiently, 
inven-  Modern    industry    is    founded    on    inventions. 

^,  . " .  Through  them  machinery  has  come  to  the  aid  of 

Their  im-  °  -^ 

portance.  man  who  has  learned  that,  by  working  coopera- 
tively with  the  help  of  machinery,  industrial  miracles  can 
be  accomplished.  Steam  and  electric  power  are  slaves, 
willing  and  eager  to  do  the  work  of  man.  Inventions  are  the 
means  whereby  man  has  directed  this  mechanical  power. 

The  effect  of  inventions  may  be  seen  chiefly  in  three  direc- 
tions. In  the  first  place,  through  inventions,  mechanical 
Their  power    has    been    utilized    to    direct    industry. 

efecis.  Man's  physical  strength  is  infinitesimal.     Me- 

chanical power  is  therefore  brought  in  to  make  the  "  wheels 
go  around." 

Inventions  have,  in  the  second  place,  revolutionized  the 
means  of  transportation.  As  soon  as  men  discovered  that 
the  wheels  of  industry  could  be  driven  more  cheaply  and  effi- 
ciently by  mechanical  power  than  by  human  energy,  they 
applied  this  knowledge  to  improving  their  transportation 
facilities.  The  increased  supply  of  economic  goods  could 
thus  be  transported  cheaply  between  distant  places.  The 
development  of  the  railway,  the  telephone,  the  telegraph, 
the  trolley  car,  and  the  commercial  automobile  have  all 
contributed  vastly  to  industrial  development. 

Inventions  have  finally  exercised  a  wonderful  influence  on 
labor.     The  Yankee  is  noted  for  doing  nothing  by  hand  that 


American  Industry  163 

may  be  done  more  quickly  or  cheaply  by  machinery.  As  a 
result,  more  labor-saving  devices  have  been  invented  in  the 
United  States  than  in  any  other  country.  Examples  of 
such  machinery  are  found  everywhere.  In  lifting  and 
carrying  heavy  masses  of  iron  and  lumber,  great  cranes  now 
do  the  work  once  done  by  human  muscles.  The  old  hand 
press  of  Benjamin  Franklin's  time  has  been  replaced  by  the 
huge  printing  machines  of  the  present  day.  By  the  inven- 
tion of  labor-saving  machinery,  the  Yankee  has  caused  his 
head  to  save  his  hands. 

The  logical  outcome   of   these  new   conditions   brought 
about  by  inventions  was  the  factory  system  of  industry. 
It  has  already  been  pointed  out  that  during  colonial  times 
American  industrial   methods   and  processes  were   simple 
and  easily  performed.     The  home  was  the  seat  ^j^g 
of  industry.     Here  was  done  the  work  of  spin-  "factory 
ning,  weaving,  and  cloth  making.     Because  in-  ^J^^  ^^ 
dustry  was  confined  to  the  home,  this  method  of  essential 
manufacture  was  called  the  "domestic  system"  ^^'^'^''"■ 
of  industry.     However,  with  the  advent  of  the  new  inven- 
tions of  the  latter  half  of  the  eighteenth  century,  industry 
required  entirely  new  conditions.     Complicated  machinery 
could  not  be  installed  in  the  home ;    it  must  be  separately 
housed  in  the  factory.     Things  were  thus  no  longer  hand- 
made  and    home-made,    but    machine-made    and    factory- 
made.     Labor,  too,  instead  of  consisting  of  a  small  family 
group  was  now  made  up  of  great  groups  in  large  factories. 
In    this    manner,    the    nineteenth    century    witnessed    the 
development  of  the  "  factory  system  "  of  industry. 

The  advantages  of  this  system  are  seen  primarily  in  the 
production  of  wealth.  The  great  quantities  of  goods  pro- 
duced   by    the    factory    make    jiossible   a   decrease   in   the 


164 


Elements  of  Economics 


cost  of  manufacture,  well  illustrated  by  the  following  table 
Its  prepared  by  the  United  States  Department  of 

advantages.  Labor.  The  table  refers  to  the  manufacture  of 
one  hundred  pairs  of  "  men's  medium-grade  calf,  welt,  lace 
shoes,  single  soles,  soft  box  toes  "  :  — 


1863 


189s 


Different  operations  performed 
Different  workmen  employed 
Time  of  work  —  Hours      .     . 
Time  of  work  —  Minutes  .     . 
Labor  cost 


73 

173 

I 

371 

1831 

234 

40 

36.3 

$457-91 

$59-54 

The  first  column  represents  conditions  under  the  domestic 
system  of  industry ;  the  second,  under  the  factory  system. 
The  number  of  persons  working  on  the  shoes  has  increased 
from  one  to  three  hundred  and  seventy-one,  yet  at  the 
same  time  the  total  labor  cost  has  decreased  to  almost  one 
eighth  of  its  former  amount.  With  this  reduction  in  the 
labor  cost  there  has,  however,  been  a  great  increase  in  the 
cost  of  tools  and  machinery. 

From  the  standpoint  of  consumption  the  advantages  of 
the  factory  system  are  no' less  evident.  Things  which  were 
formerly  produced  in  the  home  with  great  care  and  expense 
are  now  cheaply  supplied  by  the  factory.  Hosiery  firms 
in  one  week  turn  out  ten  thousand  dozen  pairs  of  stockings ; 
the  factory  deluges  the  housekeeper  with  manufactured 
breakfast  foods  and  canned  fruit.  Because  the  factory  does 
all  this  more  cheaply  than  the  home,  man's  consumption  has 
become  more  varied. 

The  factory  system  of  industry  has  some  disadvantages 


American  Industry  165 

also.  These  were  felt  chiefly  at  the  outset,  when  large 
numbers  of  skilled  laborers  were  forced  out  of  work  by  the 
introduction  of  machinery.  However,  after  an  adjustment 
to  the  new  conditions  had  been  effected,  this  evil  was  in  part 
removed.  A  more  present  evil  is  found  in  the  fact  that 
individuals,  hving  and  working  under  the  factory  us  dis- 
system,  are  subjected  to  the  harmful  conditions  <^dvaniages. 
imposed  by  that  system.  In  this  connection  attention  has 
already  been  called  to  the  evils  of  child  labor,  to  the  danger 
from  unguarded  machinery,  from  dust,  high  temperature, 
and  lack  of  ventilation.  Then,  too,  the  massing  of  laborers 
in  large  cities  near  factories  presents  a  serious  problem.  But 
after  all,  these  conditions  are  transitory  and  may  in  the 
course  of  time  be  remedied. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  In  what  industrial  qualities  did  the  early  colonists  differ  from 
the  Indians  ? 

2.  Why  did  the  colonists  wish  to  develop  secondary  industries  ? 

3.  What  important  influence  did  the  division  of  industries  — 
agriculture  in  the  Southern,  and  manufacture  and  commerce  in  the 
Northern  colonies  —  have  upon  the  later  history  of  the  United  States  ? 

4.  Was  the  English  colonial  policy  ultimately  beneficial  to  Eng- 
land ?     To  the  colonies  ? 

5.  What  parallel  may  be  drawn  between  the  English  colonial 
policy  of  1700  and  the  American  colonial  policy  of  igoo? 

6.  Were  the  colonists  justified  in  objecting  to  the  British  re- 
strictions on  their  commerce  and  manufacture  ? 

7.  Had  the  American  manufacturers  no  alternative,  m  1780,  but  to 
ask  for  a  protective  tariff  ? 

8.  Was  Hamilton  correct  in  assuming  that  a  nation  should  be  self- 
supporting  through  the  production  of  all  the  necessaries  of  life? 

Q.  What  factors  made  possible  the  rapid  advance  of  American 
manufactures  after  181 5? 


1 66  Elements  of  Economics 

10.  What  advantage  had  the  American  over  the  European  manu- 
facturer ? 

11.  What  is  the  importance  of  inventions  to  society  ? 

12.  Where  do  the  benefits  of  inventions  go  ? 

13.  What  is  the  most  effectual  way  of  encouraging  inventors? 

14.  What  are  the  leading  causes  of  the  development  of  the  factory 
system  ? 

15.  What  are  the  chief  evils  of  the  factory  system  ? 

16.  Can  the  evils  of  the  factory  system  be  separated  from  it?  If 
so,  how  ? 

17.  Was  the  factory  system  inevitable? 

18.  Are  there  any  ways  in  which  the  factory  system  can  be  super- 
seded ? 

19.  Has  the  increased  amount  of  goods  produced  under  the  factory 
system  made  up  for  the  loss  individually  which  has  been  the  lot  of 
many? 

REFERENCES 

Industrial  History  of  the  United  States  —  K.  Coman. 
Economic  History  of  the  United  States  —  E.  L.  Bogart. 
Industrial  Evolution  —  C.  D.  Wright. 
The  Factory  System  —  R.  W.  C.  Taylor. 
Students'  History  of  United  States  —  E.  Channing. 
The  Industrial  Revolution  —  A.  Toynbee. 


CHAPTER   XXI 

Large  Scale  Production 

I.  Its  nature 

1.  What  it  means 

2.  The  former  method 

3.  The  present  method  : 

a.  An  illustration 

b.  Its  essential  features 

c.  How  it  has  spread 

II.  Its  advantages 

1.  Decreased  cost  of  production 

2.  Control  of  the  product 

3.  Utihzation  of  by-products  : 

a.  Its  meaning 

b.  Some  examples 

4.  Specialization  in  industry 

III.  Its  disadvantages  and  consequences 

1.  The  disadvantages 

2.  The  consequences : 

a.  On  labor 

b.  On  capital 

3.  The  conclusion 

Nature  of  Large  Scale  Production.  —  The  logical  out- 
come of  the  factory  system  is  the  system  of  large  scale  pro- 
duction ;  that  is,  production  which  is  carried  on  with  such  a 
high  degree  of  organization  and  with  such  a  great  mass  of 
capital  that  the  producers,  in  order  to  facilitate  what  it 
and  cheapen  operations,  are  able  to  utilize  the  '"^^"s. 
most  modern  methods  and  appliances  and  to  employ  the 
most  efficient  labor. 

167 


1 68  Elements  of  Economics 

Consider,  for  example,  in  the  iron  industry,  the  difference 
between  the  methods  employed  twenty-five  years  ago  and 
those  used  to-day.  When  iron  ore  was  discovered  in  the 
Lake  Superior  region  after  the  iron  industry  had  been 
The  former  centered  at  Pittsburg,  the  manufacturers  of  iron 
method.  wished  to  transport  the  ore  to  the  coal  district. 
To  accomplish  this,  steamboats  were  employed  to  carry 
the  ore  down  the  Lakes  to  a  point  near  Pittsburg ;  and  then 
the  ore  was  taken  from  the  boats  by  means  of  hand  tools, 
such  as  shovels  and  wheel  barrows.  This  simple  method  of 
performing  the  work  was  known  as  small  scale  production. 

In  contrast  to  this,  to-day,  we  have  the  methods  of  large 
scale  production.  The  ore,  dug  from  the  ore  fields  with 
steam  shovels,  is  hauled  to  the  lakeside  and  emptied  on  a 
The  high   wharf.     From   this  wharf  the  iron  ore  is 

^'^^h'd-  dropped  through  shutes  into  the  hold  of  an  ore 
An  iiius-  sl^^P  which  then  proceeds  to  the  lower  Lake  ports. 
traiion.  Here  special  electrical  machinery  operates  huge 

grab-buckets,  which  drop  into  the  hold  of  the  ship,  grab 
from  six  to  ten  tons  of  ore  at  once,  and  transfer  it  to  the 
cars  waiting  to  convey  it  to  Pittsburg.  By  means  of  these 
grab  buckets,  ten  thousand  tons  of  ore  can  be  transferred 
from  the  vessel  to  the  cars  in  a  few  hours.  In  all  these  pro- 
cesses it  will  be  observed  that  muscular  energy  has  been  re- 
placed by  mechanical  appliances. 

But  these  appliances  are  not  secured  for  nothing.  The 
unloading  plant  itself  costs  a  quarter  million  dollars,  —  a  sum 
7/5  essen-  greater  than  that  represented  by  the  entire  plant 
tiai  features.  q£  ^]^g  small  scalc  produccr.  Thus,  large  scale 
production  necessitates  not  only  the  most  modern  methods 
and  machinery,  but  also  vast  sums  of  capital  centralized 
in  a  few  hands. 


Large  Scale  Production  169 

The  development  of  large  scale  production  in  the  United 
States  during  the  last  quarter  of  the  nineteenth  century  has 
been  phenomenal.  By  no  manner  of  means  has  this  method 
been  confined  to  the  iron  and  steel  industries.  howU 
On  the  contrary,  it  has  spread  to  the  production  ^"■^  spread. 
of  oil,  of  sugar,  of  tobacco,  of  bread  products,  of  electrical 
appliances,  of  locomotives,  and  indeed  of  practically  all  the 
leading  industries  of  the  country. 

Advantages  of  Large  Scale  Production.  —  Many  advan- 
tages are  derived  from  this  system  of  production.     It  is 
obvious  at  the  outset  that  new  methods  and  ap-  Decreased 
pHances  cheapen  the  cost  of  production.     On  this  cost  of 

/-^    .  1         ,  •  1  •  production. 

pomt,  however,  sufficient  has  been  said  in  connec- 
tion with  the  factory  system.     But  large  scale  production 
decreases  cost  of  production,  not  only  through  the  use  of 
improved  machinery,  but  also  through  the  control  of  raw 
materials  and  the  utilization  of  by-products. 

In  the  first  place,  this  system  of  industry  aims  to  place  in 
the  same  hands  the  control  of  the  product  from  the  time  it  is 
raw  material  until  it  has  been  converted  into  a  finished  or 
semi-finished  product.     This  fact  may  be  well  illustrated 
by  the  development  of  the  Carnegie  Steel  Com-  control  of 
pany.     Mr.    Carnegie,    who    controlled   a   small  the 
steel  mill,  wished  to  own  also  the  raw  materials, 
—  ore  and  coke,  —  as  well  as  the  means  of  transporting 
them  to  his  works.     He  therefore  proceeded  to  secure  con- 
trol, successively,  of  the  Frick  Company's  coal  and  coke ; 
of  extensive  ore  fields  in  the  Lake  region ;    and,  finally,  of 
certain  transportation  lines  running  into  Pittsburg.     In  this 
manner,   the  Carnegie  Steel   Company  secured  control  of 
steel  from  the  ore  bed  to  the  finished  rail. 

Another  striking  advantage  of  large  scale  production  is 


170  Elements  of  Economics 

found  in  its  utilization  of  by-products.  By-products  are 
the  waste  of  industry,  which  by  special  processes  are  con- 
utilization  verted  into  economic  goods.  In  the  packing 
°^  ^'^'  houses  of  the  West,  for  example,  bones  are  made 

products :  ,  r    1  •    1  r  •  1         1  • 

Us  into  many  useful  articles ;  fats  provide  glycerine 

meaning.  for  the  preparation  of  soap  and  toilet  articles ; 
and  the  gray  matter  of  calves'  brains  is  turned  into  medi- 
cine for  the  treatment  of  nervous  diseases.  Through  the 
aid  of  by-product  utilization,  the  great  Western  packer  is 
thus  able  to  maintain  his  business  against  local  compe- 
tition. 

Other  industries  effect  similar  savings.  Slag,  or  waste 
from  iron  furnaces,  is  now  made  into  high-class  brick. 
"  Buckwheat  "  and  *'  dust  "  coal  were  formerly  thrown 
away  as  refuse  after  the  larger  sizes  had  been  screened  out. 
To-day,  however,  this  coal  is  utilized  in  the  production 
Some  of  steam.     Perhaps  the   best-known    utihzation 

examples.  qJ  by-products  has  come  with  the  development 
of  the  cotton  seed  oil  industry.  In  i860,  cotton  seed  was 
garbage;  in  1870,  fertilizer;  in  1880,  cattle  food;  and  in 
1890,  table  food.  Such  striking  transformations  make  us 
wonder  what  the  future  may  bring  forth. 

Still  another  great  advantage  resulting  from  large  scale 
production  is  found  in  specialization  in  industry.  Although 
large  scale  production  has  brought  a  large  number  of  plants 
under  one  management,  this  centralization  is  resulting  in 
Speciaii-  cach  plant's  specializing  in  the  manufacture  of 
zation  in  somc  particular  product.  For  example,  in  manu- 
facturing blacksmiths'  supplies,  one  factory  makes 
horseshoes  ;  another,  horseshoe  nails  ;  a  third,  drills  ;  and  a 
fourth,  bolts  and  nuts.  In  this  manner  industry  is  being 
constantly  specialized ;    and,  of  course,  along  with  this  de- 


Large  Scale  Production  171 

velopment,  highly  specialized  skill  and  minute  subdivision 
of  labor  have  resulted. 

Some  Disadvantages  and  Consequences.  —  Large  scale 
production  may  also  have  its  disadvantages.  An  enormous 
amount  of  capital,  concentrated  in  the  hands  of  a  few  indi- 
viduals, gives  a  small  group  of  men  extraordinary  power. 
This  power  may  be  used  for  ill  as  well  as  for  good.  For 
example,  it  may  be  used  to  secure  "  special  privi-  The  dis- 
lege,"  —  a  corrupt  aUiance  between  government  advantages, 
and  business.  Or,  this  power  may  be  dehberately  used  to 
crush  competing  men  and  companies.  Likewise,  the  bene- 
fits resulting  from  the  decreased  cost  of  production  may  be 
enjoyed,  not  by  the  community  in  the  form  of  lower  prices 
and  higher  wages,  but  by  the  great  capitaKsts  in  the  form 
of  higher  prices  and  lower  wages. 

Some  other  consequences,  which  may  or  may  not  be  dis- 
advantageous, result  from  the  system  of  large  scale  produc- 
tion.    In  the  first  place,  men  do  not  produce  finished  goods. 
This  result  was,  of  course,  first  brought  about  by  the  divi- 
sion of  labor,  but  the  great  specialization  of  large  scale  pro- 
duction has   rendered    this  all  the  more  inevitable.     For- 
merly a  man  made  a  shoe,  or  a  hat,  or  a  coat,  jhe  conse- 
To-day  he  performs  but  one  operation  required  quences: 
in    the    productive    process.     For    example,    a  ^^^'^^'"'■ 
man  may  simply  polish  the  oil  cups  of  locomotives,  which  are 
eventually  used  to  haul  food  across  the  continent  for  his 
table.     He  no  longer  produces  food,  but  directs  his  labor 
toward    the   performance   of   one   simple   operation.     This 
change  has  resulted  in  labor's  being  highly  specialized  and 
organi/x'd  in  the  form  of  a  great  industrial  army. 

On  the  other  hand,  the  effects  of  this  system  of  large  scale 
j)r()ducti()n  have  Ijcen  felt  i)crhaps  even  more  in  the  organiza- 


172  Elements  of  Economics 

tion  and  management  of  capital.  The  old,  simple  methods 
of  doing  business  are  rapidly  disappearing.  Formerly  a 
man  with  a  small  amount  of  capital  engaged  in 
business  independently ;  to-day  he  becomes  one 
of  a  thousand  all  engaged  in  a  common  business.  The 
single-handed  capitalist  has  been  replaced  by  the  huge 
cooperative  corporation,  which  may  be  managed  for  the 
benefit  or  the  detriment  of  the  community. 

In  these  various  ways  the  modern  system  of  large  scale 
production  has  resulted  in  momentous  consequences. 
The  con-  While  some  of  these  are  disadvantageous,  they 
elusion.  g^j.g  generally  transitory  and  remediable.  Those 
that  are  advantageous,  however,,  are  permanent  and  in- 
creasing. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  Outline  the  chief  factors  which  have  made  large  scale  production 
possible. 

2.  What  effects  have  inventions  had  on  large  scale  production? 

3.  Discuss  the  chief  advantages  of  large  scale  production. 

4.  Are  these  advantages  an  integral  part  of,  or  are  they  merely 
incidental  to,  large  scale  production  ? 

5.  Could  modern  society  exist  without  large  scale  production  ? 

6.  Discuss  the  economic  effects  on  China  of  introducing  a  system 
of  large  scale  production. 

7.  Discuss  the  importance  of  by-products  to  modern  industry. 

8.  What  has  been  the  chief  cause  of  the  utilization  of  by-products  ? 

9.  What  is  the  relation  between  large  scale  production  and  the 
use  of  by-products  ? 

10.  Does  the  saving  through  by-products  benefit  the  consumer  ? 

1 1 .  Are  the  advantages  derived  by  the  public  from  large  scale  pro- 
duction more  numerous  than  the  disadvantages  ? 

12.  Is  it  likely  that  large  factories  will  ever  be  devoted  to  portrait 
painting  ?     Give  reasons. 


Large  Scale  Production  173 

13.  For  which  of  the  following  articles  is  large  scale  production 
appropriate  :  hand-made  shoes  ;  machine-made  shoes  ;  furniture  ; 
nails ;   cut  glass  ;  orchids  ;  millinery  ? 

14.  Do  you  understand  that  all  business  is  destined  to  become 
large  scale  business  ? 

REFERENCES 

The  Story  of  Iron  and  Steel  —  J.  R.  Smith. 
Economic  History  of  the  United  States  —  E.  L.  Bogart. 
Census  Reports  on  "Manufactures,"  1900-1910. 
Industrial  Evolution  —  C.  D.  Wright. 


CHAPTER  XXII 

Business  Organization 

I.  The  earlier  forms 

1.  The  "  entrepreneur  " 

2.  The  partnership : 

a.  Its  nature 

b.  Its  advantages 

c.  Its  disadvantages 

II.  The  later  forms 

1 .  The  corporation : 
a.  Its  nature 

h.  Its  advantages : 
(i)  Great  capital 

(2)  Limited  liability 

(3)  Good  management 

2.  The  trust: 

a.  Its  nature 
h.  Its  different  forms  : 
(i)  The  \'  pool  " 

(2)  The  board  of  trustees 

(3)  The  holding  company 
c.  Its  federal  regulation : 

(i)  Why  necessary 

(2)  The  Sherman  Anti-Trust  Act 

(3)  Influence  of  the  Supreme  Court 

(4)  The  outlook 

The  industrial  revolution,  from  the  domestic  system  to 
large  scale  production,  is  reflected,  in  the  world  of  business 
management,  in  the  change  from  the  single  employer  to  the 
great  trust.  These  later  forms  of  business  organization 
are  more  easily  understood  after  a  study  of  the  earHer  forms. 

174 


Business  Organization  175 

The  Earlier  Forms.  —  At  first,  business  was   conducted 
simply  by  one  individual.     To-day,   this    method  is  still 
pursued  by  the  single  business  man  who  launches  out  for 
himself.     Because  he  undertakes  the  full  responsi-  ^j^^ 
bilities  of  the  business,  he  is  called  an  "  entre-  "  entre- 
preneur "    or    enterpriser.     The    term     "  entre-  p''®^®"''- 
preneur  "  is  equally  applicable  to  the  peanut  vender,   to 
the  corner  grocer,  or  to  the  head  of  a  great  factory.     An 
entrepreneur  is  simply  one  who  "  runs  "  his  own  business,  — 
assuming  the  risks,  receiving  the  profits,  and  bearing  the 
losses. 

Under  the  partnership  form  of  business  organization  two 
or  more  men  go  into  business   together.      The  The  part- 
single    entrepreneur   is    replaced  by  two,  three,  "^ership: 
or  four  men  who  jointly  conduct  the  business  and  share 
its  gains  and  losses. 

This  method  of  doing  business  has  a  double  advantage. 
In  the  first  place,  the  capital  is  increased ;  and,  secondly,  the 
work  is  more  efficiently  performed  by  each  partner's  spe- 
ciahzing  in  some  particular  direction.     However,  the  part- 
nership has  two  serious  disadvantages.     The  first  Hs  advan- 
of  these  lies  in  the  fact  that  each  partner  is  re-  disadmn- 
sponsible,  up  to  the  value  of  his  personal  pos-  '««"■ 
sessions,  for  all  debts  contracted  by  the  other  partners  in 
pursuance  of  the  business.     A  further  disadvantage  of  the 
partnership  is  the  limited  amount  of  capital  it  controls. 
Although  the  amount  is  usually  considerably  greater  than 
that  which  a  single  business  man  commands,  yet  it  falls 
so  far  short  of  the  needs  of  modern  times  that  other  forms 
of  business  organizations  were  devised. 

The  Later  Forms.  —  To  meet  the   necessities   of   large 
scale  i)roduction  the  business  corporation   came  into  exist- 


176  Elements  of  Economics 

ence.  A  corporation  may  be  defined  as  "an  association  of 
individuals,  known  as  stockholders,  who  are  empowered  by 
legal  charter  to  elect  annually  a  board  of  directors,  and 
through  it  to  act  as  one  person  in  the  conduct  of  the  specified 
business."  The  corporation  is  thus  a  legal  entity,  existing 
only  in  the  eyes  of  the  law.  Although  it  is  an  artificial 
The  cor-  Creature,  it  possesses  many  attributes  of  natural 
poration:  persons.  For  example,  it  has  power  to  sue  and 
Its  nature.  ^^  j^g  g^g^ .  ^q  hold,  purchasc,  and  convey  real 
and  personal  estates ;  to  appoint  officers  and  agents ;  and 
above  all,  it  is  empowered  "  to  have  succession,  by  its 
corporate  name,  for  the  period  limited  in  its  charter,  and 
when  no  period  is  limited,  perpetually."  This  last  feature 
of  perpetual  existence  is  extremely  valuable  to  the  corpora- 
tion because  dependence  upon  the  life  of  an  individual  entre- 
preneur or  partner  creates  a  most  undesirable  instability. 

Aside  from  its  permanent  character,  the  corporation,  as 
a  form  of  business  organization,  possesses  other  advantages. 
Its  ad-  Chief  among  these  is  its  ability  to  amass  a  great 

vantages.  g^J^  qJ  Capital.  Thousands  of  individuals, 
through  their  purchase  of  stock  in  the  corporation,  contrib- 
ute millions  to  its  capital. 

This  abihty  of  the  corporation  to  raise  capital  depends 
largely  upon  the  principle  of  limited  liability.  According 
to  this  principle,  stockholders  are  hable  for  the  debts  of  the 
company  only  to  an  amount  equal  to  the  par  value  of  the 
stock.  If  the  business  fails,  therefore,  a  single  stockholder 
can  lose  only  the  value  of  his  stock.  The  only  exception  to 
this  general  rule  is  in  the  case  of  national  banks,  where  the 
liability  is  double  the  amount  of  the  par  value  of  the  stock 
subscribed. 

The  corporation  also  possesses  advantages  from  the  stand- 


Business  Organization  177 

point  of  the  management  of  its  business.  This  form  of 
business  organization  secures  flexibility.  Through  the 
simple  process  of  a  stockholders'  election  a  complete  change 
in  the  management  may  be  effected.  Likewise,  through  the 
offer  of  high  salaries  the  corporation  is  able  to  secure  the 
ser\dces  of  efficient  men  far  beyond  the  reach  of  smaller 
concerns.  Finally,  the  economies  of  large  scale  production 
made  possible  by  the  resources  of  the  corporation  constitute 
perhaps  the  greatest  advantage  of  this  form  of  business 
organization. 

Just  as  the  partnership  was  superseded  by  the  corporation, 
so  the  single  corporation  has  been  superseded  in  many  fields 
of  activity  by  a  still  larger  unit  of  management,  the  trust. 
The  trust,  like  the  corporation,  is  a  form  of  The  trust: 
business  organization  devised  to  meet  a  definite  ^'•^  nature. 
economic  need.  It  may  be  said  to  have  passed  through 
three  stages  of  development. 

The  first  form  the  trust  assumed  is  popularly  known  as 
the  "  pool."  In  this  form,  independent  producers  in  any 
one  line  make  agreements  to  eliminate  competition  among 
themselves  either  by  restricting  output  or  by  fixing  prices. 
The  pool  is  so  named   because,  under  such  an    ,    , 

*  ^  ^  lis  forms. 

arrangement,  the  receipts  of  the  various  firms  are 
put  into  a  common  fund  or  "  pool  "  and  divided  among 
them  in  a  proportion  formerly  agreed  upon.  Not  only  has 
this  system  proved  weak  by  reason  of  the  outbreak  of  mutual 
jealousy  and  distrust,  but  such  agreements  have  also  been 
declared  illegal. 

Therefore,  the  trust  entered  on  its  second  stage  of  develop- 
ment. In  this  stage  the  various  competing  corporations 
turn  over  their  stock  to  a  central  board  of  trustees,  which 
hands  back  "  trust  certificates  "  in  exchange.     This  board, 


178  Elements  of  Economics 

holding  a  majority  of  the  stock  of  the  various  constituent 
companies,  maintains  complete  harmony  among  the  com- 
panies and  regulates  output  and  price.  This  is  the  "  trust  " 
in  the  technical  sense.     It  has  been  declared  illegal. 

The  third  form  of  the  trust,  devised  because  the  trustee 
"  trust "  was  outlawed,  is  known  as  the  holding  company. 
Under  the  holding  company  plan  each  corporation  entering 
the  combination  maintains  its  separate  existence.  To 
secure  unity  of  action,  a  central  corporation  is  formed, 
empowered  to  hold  stock  of  other  corporations.  The  stock 
of  the  parent  company  is  then  exchanged  for  the  stock  of  all 
the  various  constituent  corporations.  This  places  under 
one  central  control  the  voting  power  on  the  stock  of  all 
combining  companies,  thus  insuring  uniformity  of  action 
and  the  maintenance  of  prices.  This  third  stage  resembles 
very  much  the  second,  except  that  a  board  of  trustees  is 
illegal,  and  a  corporation  empowered  to  hold  stock  of  other 
companies  may  or  may  not  be  illegal. 

The  holding  company,  then,  is  the  modern  form  of  busi- 
ness organization.  When  vast  sums  of  capital  become 
Its  federal  Concentrated  in  a  few  hands,  some  supervision 
regulation,  ^f  ^j^g  ^gg  |-q  ^yhich  they  are  put  is  required.  The 
remedy,  therefore,  for  the  evils  incident  to  trust  organiza- 
tion lies  in  some  form  of  government  regulation. 

At  first  the  states  attempted  to  regulate  the  trusts.  In 
1889  Kansas  took  the  lead  by  passing  a  law  against  business 
corporations.  In  the  same  year  she  was  joined  by  some 
other  states ;  and  during  the  first  half  of  the  following  year, 
three  more  states  joined  the  movement.  These  laws  usu- 
ally struck  at  all  combinations  regardless  of  whether  they 
formed  complete  or  only  partial  monopolies.  They  were 
so  drastic  in  character  that  they  were  often  declared  uncon- 


Business  Organization  179 

stitutional.  Furthermore,  the  laws  of  the  different  states 
conflicted  in  their  provisions.  But  above  all,  state  action 
proved  inadequate  because  of  the  limited  power  of  the  states. 
In  our  dual  system  of  government,  the  federal  government 
alone  has  power  over  interstate  commerce ;  and  it  is 
chiefly  in  this  kind  of  commerce  that  the  great  corporations 
are  engaged.  Not  state,  but  federal  regulation,  therefore, 
became  imperative. 

In  1890  the  demand  for  federal  action  was  so  general  and 
insistent  that  Congress  passed  the  Sherman  Anti-Trust  Act. 
According  to  this  act  ''  every  contract,  combination  in  the 
form  of  trust  or  otherwise,  or  conspiracy  in  restraint  of 
trade  or  commerce  among  the  several  states,  or  with  foreign 
nations  "  is  declared  illegal.  The  terms  of  this  act  are  so 
sweeping  that  they  have  been  applied  not  only  to  industrial 
combinations,  but  also  to  railroads  and  labor  organizations. 
In  fact,  the  language  of  this  act  is  so  inclusive  that  there  has 
been  much  doubt  concerning  its  exact  meaning. 

The  decisions  of  the  United  States  Supreme  Court  in 
1 910  in  the  Standard  Oil  case  and  later  in  the  tobacco 
case  have,  however,  somewhat  clarified  the  situation. 
According  to  these  decisions,  any  combination  which  "  un- 
reasonably "  restrains  trade  is  illegal.  In  commenting  on 
this  decision  a  recent  writer  says:  "The  purpose  (of  this 
act)  was  to  forbid  such  contracts  or  combinations  as  tend  to 
prevent  .  .  .  competition  and  to  create  a  monopoly  with 
power  to  fix  prices,  limit  output,  and  deteriorate  quality. 
This,  therefore,  is  the  standard  by  which  every  trade  com- 
bination is  to  be  tested.  If  its  necessary  effect  is  to  create 
such  a  monopoly,  it  is  illegal.  If  it  has  no  such  effect,  it  is 
legal.  Whether  in  any  [)arti(ular  case  brought  before  the 
Court  the  combination  has  such  effect  is  '  to  be  determined 


i8o  Elements  of  Economics 

by  the  light  of  reason  guided  by  the  principles  of  law,  and 
the  duty  to  apply  and  enforce  the  public  policy  embodied  in 
the  statute.'  " 

Thus  it  is  possible  for  certain  combinations  to  be  declared 
illegal,  and  for  others  to  exist  within  the  law.  When  one 
form  is  declared  illegal,  another  in  harmony  with  the  law 
will  be  devised.  The  process  of  evolution  is  at  work  in 
industry  as  well  as  in  society ;  and  large  scale  production  is 
one  of  its  products.  But  this  does  not  mean  that  a  trust 
organization  of  industry  will  be  allowed  to  trample  certain 
elemental  individual  rights.  The  ultimate  test  of  this  or 
of  any  other  proposed  legislation  must  be  social  welfare. 
Until  the  trusts  conserve  social  welfare,  the  trust  problem 
will  be  unsolved. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  Name  the  different  forms  of  business  undertaking.  Discuss 
them  from  the  standpoint  of  their  relative  strength  and  weakness. 

2.  Are  the  following  entrepreneurs?  a  cobbler,  a  farmer,  a  con- 
sulting engineer,  the  boss  of  a  section  gang,  a  banker. 

3.  Name  some  of  the  duties  of  an  entrepreneur. 

4.  What  are  the  chief  points  of  difference  between  a  corporation 
and  a  partnership  ? 

5.  Why  is  the  corporation  an  advantageous  form  of  business  organ- 
ization ? 

6.  What  advantages  has  a  corporation  as  compared  with  a  partner- 
ship ?  Are  there  any  respects  in  which  a  partnership  has  advantages 
not  possessed  by  a  corporation  ? 

7.  What  is  a  holding  company?  What  are  the  advantages 
afforded  by  this  form  of  organization  ? 

8.  What  is  a  trust  ? 

9.  Is  the  growth  of  combination  in  accord  with  economic  law  ? 

10.  Is  the  movement  toward  combination  still  going  on  ?  Is  it 
likely  to  continue  in  the  future  ? 


Business  Organization  i8i 

11.  Are  all  trusts  monopolies?     Are  all  monopolies  trusts? 

12.  What  social  adv'antages  and  disadvantages  do  you  see  in   the 
trusts  ? 

13.  Is  there  likely  to  be  a  world  corporation  formed?     Or  a  "great 
trust"  in  which  every  one  will  be  a  shareholder? 

14.  Who  is  the  promoter  ?     Is  he  responsible  for  the  formation  of 
trusts  ? 

15.  WTiat  are  the  arguments  for  and  against  full  publicity  ? 

16.  On  what  basis  is  the  amount  of  capitalization  of  a  trust   de- 
termined ? 

17.  What  are  the  checks  on  the  power  of  monopolies  to  raise  the 
prices  of  their  products  ? 

18.  What  advantages  and  disadvantages  do  you  see  in  monopoly? 

19.  Would  the  abolition  of  the  tariff  result  in  the  disappearance  of 
the  "trusts"? 

20.  Name  some  of  the  tendencies  in  the  organization   of  natural 
resources. 

21.  What  changes  are  being  made  in  the  organization  of  labor? 

22.  Name  some  indications  of  increasing   government  activity   in 
business. 

REFERENCES 

The  Trust  Problem  —J.  W.  Jenks. 
Monopolies  and  Trusts  —  R.  T.  Ely. 
Trusts,  Pools,  and  Corporations  —  W.  Z.  Ripley. 
Trust  Finance  —  E.  S.  Meade. 


CHAPTER  XXIII 
The  Industrial  Army 

I.  Development  of  labor  cooperation 

1.  The  stages  of  cooperation : 

a.  Simple  cooperation  i 

h.  Division  of  employments 

c.  Division  of  labor 

d.  Specialization  in  industry 

2.  Advantages  of  cooperation  : 
a.  In  regard  to  the  product 
h.  In  regard  to  machinery 

II.  The  army  of  workers 

1.  The  organizer: 

a.  Policies  and  subordinates 
h.  Markets  and  methods 

2.  The  manager 

3.  The  "  boss  " 

4.  The  wage  worker : 

a.  The  skilled  worker 

h.  The  semi-skilled  worker 

c.  The  unskilled  worker : 
(i)  His  characteristics 
(2)  Why  increasing 

d.  The  conclusion 

The  change  in  business  organization  brought  about  by 
large  scale  production  has  been  accompanied  by  a  similar 
development  in  the  organization  of  labor.  Formerly, 
industrial  effort  was  individual  and  competitive ;  to-day,  it 
is  social  and  cooperative. 

182 


The  hidnstrial  Army  183 

Development  of  Labor  Cooperation.  —  In  the  days    of 
savagery,  comparatively  little  labor  was  performed.     Men 
fought,  hunted,  and  fished,  and  women  took  charge  of  the 
primitive  industries.     Gradually,  however,  mihtary  coopera- 
tion led  to  industrial  cooperation.     Men  who  had  worked 
together  to  kill  a  bear  resorted  to  the  same  method  in  rais- 
ing a  stone.     Although  no  task  was  assigned  to  its  stages: 
definite  individuals,  each  man  helped  the  other  simpk  co- 
by  performing  a  like  part  of  the  same  operation.   ''^'"''^'^°'^- 
This  stage  in  the  development  of  labor  is  described  as  simple 
cooperation. 

But  simple  cooperation  at  best  is  unsatisfactory.     Some 
men  Hke  to  do  one  thing  better  than  another;    hence  the 
development  of  the  second  stage  of  labor  cooperation  known 
as  the  division  of  employments.     In  this  stage,    Division  of 
one  man  kills  game,  another  builds  boats,  while  empioy- 

.       ,  1.1        men  Is. 

the  women  carry  on  agriculture  or  weave  cloth. 
Each  produces  a  finished  product,  which  he  exchanges  for 
the  product  of  some  one  else,  and  thus  a  certain  degree  of 
interdependence  runs  through  the  whole  group. 

The  next  step  is  division  of  labor.  Formerly,  in  building 
a  house  one  man  would  perform  all  the  parts  of  that  opera- 
tion. He  would  go  into  the  woods,  fell  the  trees,  and  build 
the  house.  But  gradually  the  different  kinds  Division  of 
of  labor  involved  in  the  task  of  house  building  '"'""■• 
were  divided  among  several  individuals.  One  man  would 
simply  fell  the  trees;  another  cut  them  into  logs;  another 
haul  the  lumber  to  a  sawmill,  and  another  build  the 
house  itself.  In  this  case  several  men  cooperate,  but  each 
performs  a  different  part  of  the  general  task. 

Finally,  this  simple  division  of  labor  becomes  complex 
through  what  is  known  as  specialization  in  industry,  —  the 


184  Elements  of  Economics 

fourth  and  present  stage  of  labor  cooperation.  By  means 
of  this  principle  of  specialization,  the  different  parts  of  the 
speciaii-  ^^^^  ^^^  themselvcs  subdivided.  For  example, 
zaiion  in        in  the  above  illustration,  the  man  who  chopped 

us  ry.  (jown  the  tree  —  one  part  of  the  general  task  — 
was  provided  with  an  ax  which  was  the  result  of  the  labor 
of  hundreds  of  workmen,  each  one  of  whom  performed  some 
particular  part  in  the  process.  In  this  manner,  modern 
methods  of  production  have  resulted  in  minute  subdivision 
of  labor  and  great  specialization  in  industry.  Cooperation 
has  made  this  possible. 

By  means  of  this  form  of  labor  cooperation,  the  product 
is  not  only  increased  in  quantity,  but  improved  in  quality. 
Advantages:  Persons  who  cooperate  in  labor  learn  intimately 
Concerning  the  spccial  tasks  they  perform.  Each  one  is 
the  product.  ^^^^  ^^  ^j^  j^j^  ^^^j^  much  morc  effectively,  there- 
fore, than  he  would  be  able  to  perform  work  involving  a 
large  number  of  separate  operations.  For  this  reason,  a 
hundred  workers  in  a  shoe  factory  are  able  to  turn  out 
more  shoes  and  better  shoes  than  a  hundred  individual 
shoemakers. 

Another  great  advantage  of  this  kind  of  cooperation  is 
found  in  the  fact  that  it  makes  possible  the  use  of  machm- 
ery.  When  an  involved  operation,  like  shoemaking,  has 
Concerning  been  Subdivided  into  forty  or  fifty  operations,  the 
machinery,  rougher  work  may  often  be  done  more  quickly 
and  more  cheaply  by  machinery  than  by  human  hands. 
Thus,  the  sewing  machine,  stitching  through  heavy  leather, 
accomplishes  a  speedier  and  better  result  than  the  individual 
hand  worker.  In  this  manner,  man's  inventive  genius  de- 
velops labor-saving  machinery  to  take  the  place  of  human 
energy. 


The  Ifidustrial  Army  185 

The  Army  of  Workers.  —  To-day,  all  labor  is  cooperative, 
and  the  American  labor  force  is  highly  organized  from  top 
to  bottom  in  the  semblance  of  an  army. 

At  the  head  of  this  army  of  workers  is  the  organizer,  — 
the  commander-in-chief  of  his  particular  industry.     Like 
the  mihtary  commander,  his  duties  are  to  determine  broad 
policies  and  to  intrust  their  execution  to  compe-  The  or- 
tent  hands.     The  organizer  mobilizes  the  forces    „  ,.  .  '     . 

<->  rolicies  ana 

of  labor  and  capital  and  appKes  them  to  natural  subordinates. 
resources  in  such  a  way  that  the  smallest  outlay  produces 
the  largest  return.  He  leaves  all  details  to  his  subordinates, 
for  whose  competency  he  is  responsible. 

The  organizer  must  also  have  an  intimate  knowledge  of 
the  markets.     He  must  know  what  goods  are  in  demand 
and  where  and  when  this  demand  is  most  active,  jj^^^^^^^ 
that  is,  where  prices  are  highest.     He  must  like-  and 
wise  have  a  thorough  knowledge  of  industrial 
processes  and  methods  of  production,  so  that  by-products 
may  be  fully  utilized  and  large  scale  production  carried  on 
efficiently. 

Next  to  the  organizer  in  this  industrial  army  is  the  mana- 
ger. Like  the  colonel  of  a  regiment,  he  executes  the  orders 
and  carries  out  the  plans  of  his  superior  officer.  The  mana- 
ger, therefore,  must  be  in  closer  touch  with  the  details  of 
the  business.  While  the  organizer  directs  from  his  New 
York  office  the  policy  of  a  whole  group  of  mills  The 

,  ,  ,  ,  .  manager : 

throughout  the  country,  the  manager  is  respon-    ^^.^ 
sible  for  the  successful  management  of  only  one  duties. 
of  these  plants.     He  must  understand  not  only  the  labor 
market,  but  also  the  machinery  in  his  particular  branch  of 
industry.     It  is  his  duty  to  bring  these  two  together  so  that 
he  may  secure  the  greatest  possible  production. 


1 86  Elements  of  Economics 

Below  the  manager  is  the  foreman  or  "  boss,"  correspond- 
ing to  the  captain,  lieutenant,  or  corporal  of  a  military  or- 
ganization. It  is  his  duty  to  see  that  the  men  do  the  work 
The  that  the  manager  has  outlined.     He  is  responsible 

'  for  getting  all  the  work  possible  out  of  the  group 
duties.  of    laborers    under    his    charge.     The    "  boss," 

therefore,  requires  ability  to  get  along  with  his  men,  and  to 
persuade  them  or  compel  them  to  work  effectively.  In  the 
past,  the  Irish  have  made  the  best  bosses,  but  Italians  and 
Slavs  are  now  being  used  to  direct  the  work  of  their  own 
countrymen. 

We  now  come  to  the  ordinary  workers  themselves,  —  the 
rank  and  hie  of  this  industrial  army.  Just  as  the  successful 
execution  of  a  general's  orders  depends,  in  the  last  analysis. 
The  wage-  upon  the  bravery  and  power  of  the  great  mass  of 
worker:  soldiers,  SO  the  real  test  of  a  nation's  efficiency 
is  found  in  the  ability  and  character  of  its  great  body  of  wage- 
workers. 

The  wageworkers,,  for  convenience,  may  be  divided  into 
three  groups,  —  the  skilled,  the  semi-skilled,  and  the  un- 
skilled. The  skilled  worker  is  one  who  does  work  that  re- 
The  skilled  quircs  a  longer  or  shorter  period  of  training  or 
worker.  apprenticeship.     In  this  class  are  included  the 

type-setter,  the  blacksmith,  the  carpenter,  the  skilled  clerk 
and  bookkeeper,  and  a  host  of  others  who  have  received 
more  or  less  special  training  in  their  respective  lines  of  work. 

The  semi-skilled  worker  is  one  doing  work  that  may  be 
learned  with  comparative  ease  by  any  newcomer  who  has 
The  semi-  Ordinary  intelligence  and  ability.  Although  it 
skilled  is  hard    to  give  an    accurate  definition  of    the 

semi-skilled  wageworker,  the  number  of  men  in 
this  class  is  large.     For  example,  in  this  group  are  included 


The  Industrial  Army  187 

the  miner,  the  brakeman,  the  motorman,  the  mechanic's 
helper,  and  numerous  others  doing  work  which  requires 
some  Httle  skill  and  intelKgence,  but  no  particular  period  of 
apprenticeship. 

The  unskilled  worker  represents  a  maximum  of  physical 
force   and   a   minimum   of   mental   capacity.     The   street 
laborer,  the  coal  heaver,  and  the  ditch  digger  are  representa- 
tives of  tliis  class.     The  number  of  laborers  in  this  group  is 
increasing  by  reason  of  two  circumstances.     In   jj^^  ^^. 
the  first  place,  thousands  of  immigrants  to  this  skilled 
country,    being    unable    to    speak    the    EngHsh 
language,  are  forced  into  unskilled  labor  regardless  of  their 
native  abihty.     In  the  second  place,  the  rapid  introduction 
of  machinery  often  deprives  a  skilled  worker  of  his  regular 
labor  and  forces  him  temporarily  into  the  lower  ranks,  so 
that  he  may  now  be  obliged   to   attend   to   the  machine 
which  does  his  former  work. 

Large  scale  production  has  left  as  deep  an  impress  upon 
labor  as  upon  capital.  This  twofold  aspect  of  modern 
American  industry  presents  some  of  the  most  The  con- 
striking  problems  of  individual  and  social  wel-  '^'«"''"- 
fare.  Through  cooperation,  industrial  efficiency  has  been 
secured  and  economic  progress  attained.  This  same  prin- 
ciple, however,  must  be  utilized  to  attain  individual  efii- 
ciency  and  welfare  in  the  rank  and  file  of  the  great  army  of 
industrial  workers. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  What  is  the   rclalion  between  labor  cooperation  and  economic 
progress  ? 

2.  Discuss  the  importance  of    labor   cooperation    in    securing  in- 
creased production. 


1 88  Elements  of  Economics 

3.  Is  cooperation  increasing  or  decreasing  in  extent? 

4.  What  is  the  relation  between  labor  cooperation  and  large  scale 
production  ? 

5.  What  is  the  relation  between  labor  cooperation  and  speciali- 
zation in  industry  ? 

6.  Is  modern  labor  cooperation  voluntary  ? 

7.  Draw  a  diagram  showing  the  organization  of  labor  in  modern 
industry. 

8.  What  elements  in  the  colonial  situation  rendered  the  supply  of 
labor  small  ? 

g.  What  differences  can  be  noted  in  the  available  quality  of  labor 
in  the  early  colonies  and  in  the  United  States  at  the  present  time  ? 

10.  Is  the  organizer  necessary  to  modern  industry  ? 

1 1 .  What  service  does  the  organizer  render  ? 

12.  Is  the  supply  of  organizing  ability  limited  ?     If  so,  by  what  ? 

13.  Is  the  average  school  in  America  calculated  to  develop  organiz- 
ing ability  ? 

14.  What  is  the  most  significant  fact  regarding  the  wageworker  in 
modern  life  ? 

15.  UTiat  is  the  relation  between  our  school  system  and  the  wage- 
worker  ? 

REFERENCES 

American  Industrial  Problems  —  W.  R.  Lawson. 

Labor  Problems  —  Adams  and  Sumner. 

The  Industrial  System  —  J.  A.  Hobson. 

The  Labor  Movement  in  America  —  R.  T.  Ely. 


CIL\PTER  XXIV 
Transportation 

I.  Railroad  transportation 

1.  Its  importance 

2.  Its  rapid  growth 

3.  Centralized  control 

4.  Nature  of  the  railroad  business : 

a.  The  railroad  a  monopoly  : 
(i)  The  reasons 

(2)  Consequent  problems 

b.  The  railroad  a  "  quasi  public  "  corporation : 
(i)  Receives  public  aid 

(2)  Possesses  right  of  "  eminent  domain  " 

c.  The  conclusion 

II.  Other  transportation  agencies 

1.  The  telegraph 

2.  The  telephone 

3.  Express  companies : 

a.  Their  growth 

b.  Their  regulation : 
(i)  Why  necessary 

(2)  What  Europe  has  done 

(3)  What  the  United  States  should  do 

4.  Electric  traction : 

a.  Urban  transportation 

b.  Rural  transportation 

c.  Electrification  of  steam  roads 

5.  The  progress  attained 

Another  distinct  phase  of  American  industry  appears  in 
the  development  of  transportation  facilities.  Foremost 
among  these  facilities  is  the  railroad;    but  growing  steadily 


1 90  Elements  of  Economics 

in  importance  are  other  transportation  agencies,  such  as  the 
telegraph,  the  telephone,  express  companies,  and  electric 
traction.     Each  of  these  demands  consideration. 

The  Railroad.  —  Railroad  transportation  has  made  pos- 
sible the  American  nation.  Politically,  it  has  performed  an 
inestimable  service  by  bringing  the  diverse  parts  of  the  union 
within  easy  reach  of  each  other.  To-day,  the  city  of  Wash- 
ington is  nearer  to  San  Francisco  than  it  was,  in  early  days, 
to  Massachusetts.  From  an  economic  standpoint,  the  serv- 
ice rendered  by  the  railroad  has  been  no  less  profound.  It 
Its  im-  has  bound  North  and  South,  East  and  West,  into 

portance.  ^^  gigantic  economic  unit,  complete  and  self-sus- 
taining in  all  important  respects.  This  the  railroad  has 
accomplished  by  giving  goods  "  place  utility  " ;  that  is,  by 
transporting  goods  from  one  place  where  they  are  not  needed 
to  another  place  where  they  are  in  demand.  The  railroad 
has  thus  become  the  connecting  link  between  the  producer 
and  the  distant  consumer. 

The  growth  of  railroad  mileage  in  the  United  States  has 
been  phenomenal.  In  1830  there  were,  in  this  country, 
Its  rapid  Only  twenty- three  miles  of  railroad ;  in  i860  there 
growth.  were  over  thirty  thousand  miles;    in  1880,  over 

ninety- three  thousand  miles  ;  in  1900,  over  one  hundred  and 
ninety- three  thousand  miles  ;  and  in  1910,  two  hundred  and 
forty  thousand  miles.  This  growth  in  railway  facilities  is 
without  parallel  in  the  economic  history  of  any  other  people. 

Accompanying  this  increase  in  mileage  is  the  movement 
toward  centralization  of  railroad  control.  Two  hundred 
and  ten  independent  roads,  each  v/ith  its  own  president,  in 
Centralized  1 883,  had  been  consolidated,  by  1907,  into  fifty 
control.  Qj.  jggg      "Yhh  movement  toward  centraHzation 

has  been  so  rapid  that  it  is  not  idle  to  speculate  on  the  day 


Transportation  191 

when  four  or  five  men,  sitting  around  a  table,  will  control 
all  the  important  track  mileage  of  the  country.  At  present 
sixty  per  cent  of  the  mileage  of  the  United  States  is  under 
the  control  of  live  interests. 

The  significance  of  this  concentration  becomes  apparent 
only  when  one  considers  the  nature  of  the  railroad  business. 
The  railroad  is  essentially  a  monopoly ;  that  is,  it  performs 
a  service  which  few  other  agencies  perform,  and  the  cost  of 
which  decreases  with  the  increase  in  the  volume  of  j^g 
business.  The  initial  cost  of  constructing  a  nature: 
railroad  is  great ;  and,  therefore,  from  a  social  ^  "^^^''^poiy. 
point  of  view,  it  is  an  economic  waste  to  construct  another 
line  to  duphcate  the  work  of  the  first  road.  Moreover, 
after  the  trackage,  terminal  faciUties,  and  rolling  stock 
have  once  been  provided,  an  increase  in  the  volume  of 
business  does  not  mean  a  corresponding  increase  in  the 
expense  of  operation.  In  fact,  the  unit  expense  diminishes 
as  the  business  increases. 

In  spite  of  legal  prohibition,  railroads  may  use  their 
monopoly  power  unfairly.  For  example,  the  law  declares 
that  railroads,  in  transporting  commodities,  shall  not 
discriminate  between  individuals,  but  shall  offer  their  serv- 
ices to  all  on  equal  terms.  Nevertheless,  because  of  the 
principle  of  diminishing  expense,  the  traffic  manager  is  ever 
tempted  to  accept  extra  business  at  a  lower  rate.  This 
conflict  between  railroad  profits  and  public  interests  some- 
times leads  to  a  violation  of  the  principle  of  equal  rates  for 
equal  service. 

Another  distinctive  feature  of  the  railroad  is  its  close  de- 
pendence on  the  government.     This  close  relation 
between  the  raihoad  and  the  public  has  causcfl  Iho    "}  ,,?"!'" 

'  _  I'llhlii 

railroad  to  become  a  "  quasi  public  "  corj)oration.   corporation. 


192  Elements  of  Economics 

In  the  first  place,  railroads  from  the  earliest  times  have 
received  financial  aid  from  the  states.  In  addition  to  this, 
the  national  government  has  not  only  advanced  money,  but 
also  contributed  thousands  of  acres  of  public  land.  Thus 
railroads  are  especially  indebted  to  the  public  and  are  clearly 
marked  off  from  ordinary  economic  activities. 

But  of  even  greater  significance  is  the  railroad's  right  of 
"eminent  domain."  According  to  this  right,  a  state,  upon 
the  payment  of  just  compensation,  may  take  private  prop- 
erty for  public  use  even  against  the  will  of  the  owner.  To 
facilitate  the  railroad  in  performing  its  service,  the  state 
has  delegated  this  right  to  the  transportation  company 
and  thus  endowed  it  with  despotic  power.  Railroads  are 
thus  peculiarly  indebted  to  the  public,  and  those  who 
manage  them  should  regard  public  welfare.  They  are  not 
free  to  charge  what  rates  they  choose,  to  decide  what  sec- 
tions of  the  country  shall  prosper,  or  what  individuals  shall 
amass  large  fortunes. 

Beside  the   importance  which  it  derives  from  its  quasi 
pubhc  nature,  the  railroad  business  is  of  tremendous  magni- 
tude.    In    1909    the   labor   employed    in    railroading   was 
The  con-        somcwhat  over   1,500,000;    the  capital  invested  , 
elusion.  -^g^g   $18,000,000,000 ;     and    the    gross  earnings 

amounted  to  $20,377,000,000.  Thus  in  the  number  of 
laborers  employed  and  in  the  amount  of  capital  invested, 
railroading  is,  next  to  agriculture,  the  greatest  single  busi- 
ness in  the  United  States. 

Other  Transportation  Agencies.  —  While  the  railroad  is 
by  far  the  most  important  transportation  agency  in  the 
United  States,  there  are  other  agencies  which  play  a  great 
part  in  promoting  national  efficiency.  Chief  among  these 
are  telegraph,   telephone,   and   express  companies,  which. 


Transportation  193 

together  with  electric  traction,  constitute  an  exceedingly 
important  group  of  transportation  agencies. 

The  telegraph  developed  along  the  lines  of  railway  com- 
munication. With  improvements  in  the  railroad  system,  it 
became  necessary  to  have  some  means  of  speedy  The  tele- 
communication, not  only  between  railroad  sta-  e''*P^- 
tions,  but  also  between  signal  towers.  Since  the  telegraph 
was  the  earliest  means  of  instant  communication,  telegraph 
and  railroad  lines  everywhere  paralleled  one  another. 

However,  during  the  last  quarter  of  the  nineteenth  cen- 
tury, the  telegraph  met  a  keen  competitor  in  a  new  device  — 
the  telephone.  Unlike  the  telegraph,  which  was  immediately 
used  for  long  distance  communication,  the  telephone  at 
first  was  employed  only  to  communicate  within  The  tele- 
buildings  or  to  communicate  between  places  p^o^^- 
within  the  same  city.  Gradually,  however,  the  sphere  of 
the  telephone  was  broadened,  until,  to-day,  a  conversation 
between  New  York  and  Chicago  is  an  ordinary  occurrence. 
Despite  the  efforts  of  the  telegraph  companies  to  secure 
trade,  through  the  introduction  of  the  "  night  letter  "  and 
similar  innovations,  the  telephone  has  largely  supplanted 
the  telegraph  as  a  direct  and  effective  means  of  short  distance 
communication. 

Of  quite  a  different  character  is  the  transportation  fur- 
nished by  express  coropanies.     While  heavy  commodities 
are  transported  by  freight,  small  packages  require  a  speed- 
ier, easier  method  of  transportation.     Therefore.  Express 
the  express  business  was  developed  in  the  United   ^.^^.^ 
States.     Express   companies   (lcveloi)ed   side   by  growth. 
side  with  the  early  railroads,  until,  to-day,  there  are  strong 
indications  of  a  community  of  interests  between  them. 

At  first  the  express  business  was  organized  locally  and 


194  Elements  of  Economics 

conducted  by  a  number  of  separate  companies.  To-day, 
however,  this  business,  while  not  under  one  formal  unified 
Their  control,  is  nevertheless  combined  into  one  great 

regulation.  system  Operated  on  a  business  understanding  so 
effectual  that  territory  is  divided  and  rates  agreed  upon 
without  a  sign  of  competitive  spirit.  As  a  result  of  this 
understanding,  express  rates  in  the  United  States  are 
high. 

As  a  means  of  obviating  private  extortion  in  the  carriage 
of  small  packages,  Europe  has  adopted  the  parcels  post. 
For  a  very  low  charge,  the  government  carries  packages 
of  larger  size  than  are  transported  through  the  United 
States  mails.  Almost  every  civilized  country  in  the  world, 
except  the  United  States,  has  adopted  a  parcels  post 
system. 

There  is  no  doubt  that  the  United  States  should  follow 
European  example ;  but,  despite  long-continued  agitation, 
no  parcels  post  law  has  yet  been  passed  (191 2).  A  promi- 
nent senator  recently  stated  that  the  reasons  for  this  failure 
were  four :  the  American  Express  Company,  the  Adams 
Express  Company,  the  Wells  Fargo  Express  Company,  and 
the  Southern  Express  Company.  Whether  this  statement 
be  correct  or  not,  the  fact  remains  that  the  express  com- 
panies have  worked  consistently,  and,  so  far,  effectively, 
against  the  passage  of  parcels  post  legislation. 

The  form  of  transportation  which,  recently,  has  had  the 
most  rapid  growth  is  electric  traction.  While  electric  cars 
were  operated  during  the  last  two  decades  of  the  nineteenth 
Electric  century,  it  was  not  until  the  close  of  the  century 

traction:  ^^r^^  ^.j^g  u  boom  "  in  electric  traction  began. 
Since  that  time  financiers  have  turned  their  attention  to 
traction  operations. 


Transportation  195 

The  electric  traction  problem  has  three  distinct  phases,  — ■ 
urban  transportation,  rural  transportation,  and  electrifica- 
tion of  steam  roads.     The  concentration  of  population  in 
large  cities  has  made  the  problem  of  urban  trans-   u^^^,, 
portation  most  acute.     While  cities  have  grown  transporta- 
greatly  in  extent,   the  business  center  remains 
small.     Therefore,  the  increased  population  of  the  outlying 
regions  must  have  some  means  of  rapid  transit.     With  a 
maximum  of  speed  and  a  minimum  of  expense  in  operation, 
the  electric  car  offers  by  far  the  most  effective  means  of 
transporting  the  city  dweller  to  his  place  of  work. 

At  the  same  time  that  street  railways  have  been  electrified 
and  extended,  inter-city  and  rural  electric  lines  have  been 
developed.     As   compared   with   steam  roads,  the   cost   of 
installing  and  operating  such  fines  is  small.     Consequently, 
transportation    facilities   have    been    afforded    to    sparsely 
settled  districts  where  steam  transportation  would   ^^^^^^ 
have  been  unprofitable.     Furthermore,  a  steam  trans- 
road,   requiring  a  comparatively  level  bed,  ne- 
cessitates heavy  cutting  and  filling.     On  the  other  hand,  an 
electric  car  climbs  almost  any  hill,  and  the  cost  of  grading 
is  thus  reduced  to  a  minimum.     Hence,  the  rural  electric 
line  reaches  many  points  not  accessible  by  the  steam  railway. 
In  this  manner,  electric  traction  has  proved  a  real  boon  to 
the  countr}'  dwellers. 

The  third  phase  of  electric  traction  —  the  electrification 
<;f  steam  roads  now  in  use  — has  as  yet  barely  begun.     The 
New  York  Central  has  electrified  some  suburban  lines  run- 
ning out  of  New  York  City  with  gratifying  results,    in.crifi- 
Since  such  electrification  is  profitable  in  cases  of  cation  of 
dense  suburban  populations,  it  is  more  than  likely 
that,  during  the  next  few  decades,  all   the  suburban  steam 


196  Elements  of  Economics 

roads  running  out  of  the  larger  American  cities  will  be  elec- 
trilied. 

The  means  of  transportation  are  the  arteries  of  American 
business  and  social  life.  At  the  opening  of  the  nineteenth 
century,  the  American  people  traveled  on  land  at  the  same 
Progress  rate  that  JuHus  Caesar  traveled  centuries  before, 
attained.  Since  the  Roman  roads  were  so  superior,  modern 
traveling  might  even  have  been  slower.  But  during  this 
one  century  marvelous  progress  was  made  in  the  means  and 
methods  of  transportation.  Space  and  time  were  annihi- 
lated, distant  places  connected,  goods  and  persons  easily 
transported,  and  communication  between  distant  places 
established. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  In  what  sense  is  transportation  productive? 

2.  Why  is  transportation  a  greater  problem  in  the  United  States 
than  in  Europe  ? 

3.  How  would  the  sudden  destruction  of  all  railroads  affect  the 
life  of  the  American  people  ? 

4.  If  there  were  no  railroads,  could  there  be  any  "trusts"  ? 

5.  If  one  person  rides  on  a  pass,  who  pays  for  that  ride  ? 

6.  How  does  the  Pennsylvania  Railroad  differ  from  a  large  depart- 
ment store  in  regard  to  its  freedom  in  making  rates  or  prices  ? 

7.  Wliat  effect  has  the  prosperity  of  the  railroads  on  the  steel 
industry  ? 

8.  Have  American  railroads  in  general  followed  or  directed  the 
course  of  settlement  of  the  country  ? 

9.  Would  private  capital  have  been  invested  in  railroad  building, 
if  the  chance  of  extraordinary  gain  had  been  greater  in  other  indus- 
tries ? 

10.  Are  local  famines  likely  to  be  as  serious  in  China  in  the  future  as 
in  the  past  ? 

11.  Has  railroad  transportation  relieved  or  aggravated  the  prob- 
lem of  great  cities  ? 


Transportation  197 

12.  How  has  the  American  railroad  benefited  the  Dakota  farmer? 

13.  Can  you  think  of  any  circumstances  under  which  it  would  be 
wise  for  a  railroad  to  charge  less  than  direct  cost  ? 

REFERENCES 

American  Railway  Transportation  —  E.  R.  Johnson. 

Railway  Problems  —  W.  Z.  Ripley. 

Railway  Trafi&c  and  Rates  —  E.  R.  Johnson  &  G.  G.  Huebner. 

Heart  of  the  Railway  Problem  —  F.  Parsons. 

Elements  of  Transportation  —  E.  R.  Johnson. 


CHAPTER  XXV 

Regulation  of  Transportation 

I.  The  early  situation 

1 .  Power  of  Congress  : 
a.  The  original  clause 

h.  Why  power  was  granted 
c.  How  first  applied 

2.  Growth  of  railroads  : 

a.  How  favored  at  first 
h.  What  evils  crept  in 
c.   The  changed  attitude 

II.  The  Interstate  Commerce  Act 

1.  Its  main  provisions 

2.  Powers  of  the  Commission 

3.  Why  discriminations  were  prohibited 

4.  Other  results  of  the  act 

5.  The  defects 

III.  Later  legislation 

1.  Act  of  1903 

2.  Act  of  1906 

3.  Act  of  1910 

4.  Importance  of  regulation 

IV.  Conclusions  concerning  production 

1.  Retrogressive  societies 

2.  Static  societies 

3.  Dynamic  societies 

The  Early  Situation.  —  The  Constitutional  Convention  of 
Power  of  1787  gave  the  national  government  the  foUow- 
Congress:  jj^g  power  over  commerce,  —  "Congress  shall 
have  power  to  regulate  commerce  with  foreign  nations,  and 
among  the  several  states,  and  with  the  Indian  tribes." 


I 


Regulation  of  Transportation  199 

The  necessity  of  giving  the  central  government  some  power 
over  interstate  commerce  was  one  of  the  leading  reasons 
for  framing  a  new  constitution.     The  conflicting  interests 
that  resulted  from  giving  the  individual  states   p^,   ^^^ 
control    over    commerce    proved    conclusively,  power  was 
during  the  regime  of  the  Articles  of  Confedera-  ^^°'"' 
tion,  that  some  federal  regulation  of  commerce  was  abso- 
lutely necessary.     Therefore,  when  the  new  constitution  was 
drawn  up,  Congress  was  given  exclusive  power  to  regulate 
interstate  commerce. 

This  new  power  of  Congress  was,  of  course,  at  first  applied 
to  the  regulation  of  water  transportation  between  different 
states,  since  water  (aside  from  roads)  was  the  only  general 
means  of  transporting  goods  and  persons  from  How  first 
place  to  place.  But  with  the  impetus  given  to  '^PP^^'^'^- 
railroad  construction  in  the  epoch  following  the  Civil  War, 
the  regulation,  not  of  water,  but  of  land  transportation 
became  the  absorbing  problem. 

At  first,  the  railroad  was  encouraged  because  it  proved  a 
blessing    to    newly    developing    communities.     Cities    and 
states  vied  with  one  another  in  buying  railroad   Growth  of 
securities,  in  granting  immunity  from  taxation,    jj^^ 
and  in  affording  every  inducement  for  railroad  favored. 
construction.     To  these  growing  communities,  the  railroad 
afforded  the  opportunity  to  ship  out  the  commodities  which 
they  produced,  and  to  bring  in  the  goods  which  they  needed. 

This  enthusiasm  was,  however,  short-lived.     The  railroads 
developed  with  even  greater  rapidity  than  had  been  antici- 
pated ;    and,  with  their  development,  came  an  increase  in 
monopoly  power  upon  which  railroad  enthusiasts   what  evils 
had  not  counted.     To  be  sure,  the  railroads  had   '^'■''/'' "»• 
their  advantages ;  but  the  extortionate  rates  and  the  discrim- 


200  Elements  of  Economics 

inations  between  shippers  and  towns  more  than  offset 
the  increased  commercial  facilities  which  the  railroads 
afforded. 

Consequently  a  storm  of  indignant  protest  was  directed 
against  railroad  activities.  Instead  of  encouragement,  they 
now  received  strong  condemnation.  By  1870,  the  cry 
J.,  against  extortionate  rates  was  common  in  all  parts 

changed  of  the  country,  but  particularly  in  the  agricul- 
attitu  e.  tural  states  of  the  newly  developing  Middle 
West.  Stringent  state  laws  were  passed,  but  since  the  rail- 
roads were  engaged  in  interstate  business,  they  well  knew 
that  attempts  of  individual  states  to  regulate  their  activities 
would  prove  ineffectual.  Some  form  of  federal  regulation 
therefore  became  imperative. 

The  Interstate  Commerce  Act.  —  In  1887  this  situation 
culminated  in  the  passage  of  the  famous  Interstate  Com- 
merce Act,  which  was  directed  at  interstate  passenger  and 
freight  traffic  carried  by  railroad  or  by  railroad  and  water. 
This  Act  of  1887  includes  five  main  provisions:  (i)  unrea- 
sonable or  extortionate  rates  were  prohibited ;  (2)  discrimi- 
nations between  persons,  places,  and  commodities  were  made 
Main  illegal ;   (3)  fares  and  rates  were  to  be  made  pub- 

provisions.  jj(.^  ^j^(j  ^  ten-day  notice  was  to  precede  any  ad- 
vance, and  a  three-day  notice  any  reduction,  in  rates ; 
(4)  the  act  made  it  unlawful  for  a  common  carrier  to  charge 
or  receive  a  greater  rate  in  the  aggregate  for  transporting 
passengers  or  freight  under  substantially  similar  circum- 
stances and  conditions,  for  a  shorter  than  for  a  longer 
distance,  over  the  same  line,  in  the  same  direction,  the 
shorter  being  included  within  the  longer  distance ;  (5)  pool- 
ing transactions  between  railroads  were  prohibited. 

In  order  to  enforce  this  law,  a  Commission  consisting  of 


Regulation  of  Transportation  201 

five  members,  appointed  by  the  President  with  the  consent  of 
the   Senate,    was   created.     Subsequently   the   number   of 
commissioners  was  increased  to  seven  and  the  term  of  office 
fijfed   at    seven   years.     The  Commission  was  empowered 
to  investigate  rates  and  alleged  discriminations,  coj^jnig. 
and,  where  necessary,  to  bring  suit  before  the  sion's 
courts.     Orders  issued  by  the  commission  were  ^°'^^^' 
not  binding,  should  the  common  carrier,  against  whom  the 
orders  were  issued,  choose  to  appeal  to  the  courts.     Where 
an  appeal  was  taken,  the  commission  and  the  carrier  went 
through  the  regular  process  of  suing  and  being  sued  and  the 
decision  of  the  court  was  final. 

The  provision  regarding  unreasonable  and  extortionate 
rates  was  based  upon  the  English  common  law  against 
extortion.  The  discriminations  between  persons,  places, 
and  commodities  had  grown  up  with  the  railroad  industry. 
By  charging  lower  rates  to  one  shipper  than  to  another,  the 
railroad   determined   which   of   the   two   should  Why  dis- 

1        .  u  •    •  c  ui      crimina- 

remam  m  busmess;  by  givmg  more  favorable  tjons  were 
rates  to  one  town  than  to  another,  the  railroad  prohibited, 
determined  which  town  should  advance  commercially;  and 
by  arranging  the  rates  of  two  commodities,  such  as  flour  and 
wheat,  the  railroad  determined  whether  wheat  should  be 
shipped  from  the  wheat  fields  to  Minneapolis  and  there 
ground  into  flour,  or,  whether  it  should  be  shipped  from  the 
wheat  fields  to  the  flour  mills  of  the  Eastern  coast.  In  any 
one  of  these  cases,  the  railroad  was  an  arbiter  possessed  of 
most  despotic  power.  Had  it  proved  a  benevolent  despot, 
all  might  have  been  well;  but,  unfortunately,  the  use  made 
of  this  power  was  in  many  cases  disastrous  to  the  parties 
concerned. 

The  pubh'cation  of  rates  required  by  the  new  law  gave  all 


202  Elements  of  Economics 

an  opportunity  to  secure  the  same  terms  from  the  railroads; 
other  while  the  ''  long  and  short  haul  "  clause  was  aimed 

results.  against  the  abuse  of  granting  a  rate,  from  one 

city  to  the  next  city,  lower  than  the  rate  between  an  inter- 
mediate small  town  and  one  of  the  cities  in  question.  In 
an  attempt  to  stimulate  competition,  pooling  was  prohibited. 
This  last  provision  regarding  pooling  was  perhaps  the 
most  impossible  from  an  economic  standpoint.  Since  so 
many  restrictions  had   been  imposed   upon  them,  pooling 

seemed  to  be  all  that  was  left  to  the  railroads. 
The  defects.  ,  .  ... 

Being  deprived  of  this,   they  were  forced  into 

combination.     Another  defect  was  the  limited  power  given 

to  the  Interstate  Commerce  Commission.     To  remedy  this, 

subsequent  legislation  was  enacted.     In  all  the  subsequent 

acts,  however,  the  principles  underlying  the  original  law 

have  been  generally  mq,intained. 

Later  Legislation. — In   1890,   the    Sherman  Anti-Trust 

Law  was  passed.     Judicial  decisions,  however,  have  been 

responsible  for  applying  this  law  in  certain  limited  respects 

to  the  railroads.     The  act  of  1903,  known  as  the  Elkins  Law, 

increased  the  effectiveness  of  the  Commission  by  making  a 

corporation  as  well  as  its  agent  liable  to  prosecution;    by 

increasing  the  penalties  imposed  under  the  origi- 
Actofigoa.  b  f  ^  ,  .     . 

nal   Interstate   Commerce  Act;     by  permitting 

the  Commerce  Commission  to  secure  injunctions  from  the 
United  States  Circuit  Courts;  and  by  directing  the  Attor- 
ney General  to  prosecute  under  the  act.  This  law  expedited 
the  work  of  the  Commission  by  permitting  an  appeal,  in 
interstate  commerce  cases,  to  be  made  more  directly  to  the 
Supreme  Court. 

A  law  passed  in  1906  increased  the  administrative  power 
of  the  Commission  by  permitting  it  to  revise  railway  rates. 


Regulation  of  Transportation  203 

Up  to  that  time,  the  Commission  could  only  declare  that  a 

certain   rate   was  unreasonable.     Under   the   new  law,   it 

might  state  what  rate  was  reasonable  by  fixing   ^  ^   .       . 
o  .  .  ^^*  °'  1900. 

a    maximum.     In    addition,    its    authority  was 

extended  to  all  express,  sleeping  car,  and  pipe  Hne  companies 
doing  an  interstate  business.  The  law  made  further  provi- 
sions which  enabled  the  Commission  to  secure  uniform 
accounting. 

In  1 910  additional  railroad  legislation  created  a  special 
Commerce  Court  in  which  railroad  cases  are  to  be  decided. 
Frequently,  considerable  friction  prevailed  between  the  reg- 
ular courts  of  justice  and  the  Interstate  Commerce  Commis- 
sion ;  and  the  latter  body,  which  had  no  status  as  a 

'  -^  Act  of  1910. 

court,  was  subject  to  petty  annoyances  and  delays. 

The  new  law  hopes  to  increase  the  facility  with  which  the 

Interstate  Commerce  Commission  may  transact  its  business. 

Transportation  agencies  are  in  such  a  monopolistic  posi- 
tion that  they  can  practically  determine  the  welfare  of  indi- 
viduals, of  communities,  and  of  industries.    Since  importance 
it   is   undesirable    that    any   such   great   power  ofreguia- 
should  rest  uncontrolled  in  the  hands  of  private 
individuals  who  are  unaccountable  to  the  public,  legislation 
has  been  freely  passed  in  the  effort  to  regulate  individual 
control  of  transportation  facilities. 

Conclusions  concerning  Production.  — We  have  now 
concluded  the  discussion  of  some  of  the  problems  arising 
from  the  production  of  wealth.  Land,  labor,  and  capital 
are  all  necessary  to  production,  and  in  so  far  as  they  are 
rendered  efficient  will  the  productive  machinery  of  society 
be  on  an  efficiency  basis.  One  of  three  things  may  hap- 
pen to  a  productive  society,  —  it  may  retrograde,  remain 
stationary,  or  advance. 


204  Elements  of  Economics 

Even  while  population  is  on  the  increase,  the  other  factors 
in  production,  land  and  capital,  may  decrease.  Through 
Retro-  ^^^^  °^  ^^^^  ^"^  through  soil  exhaustion,  natural 

gressive  rcsources  may  be  depleted;  and  capital  or 
societies.  gm-plus  wealth  may  be  destroyed  or  wasted.  As 
a  consequence,  the  production  of  wealth  gradually  decreases 
and  human  wants  remain  largely  unsatisfied.  When  this 
condition  of  affairs  exists  throughout  the  whole  nation,  so- 
ciety becomes  retrogressive. 

In  the  second  case  a  society  may  be  stationary.  For 
centuries,  perhaps,  the  natural  method  of  utihzing  resources 
static  and  capital  may  have  remained  the  same.     Old 

societies.  customs  and  traditions  may  regulate  methods  of 
production,  thus  successfully  preventing  any  forward  move- 
ment. Labor  efficiency  is  not  increased,  and  production 
does  not  increase. 

Still  another  possibility  is  open  to  society.  A  community 
endowed  with  natural  resources,  an  efficient  labor  force,  and 
Dynamic  an  abundance  of  capital  or  surplus  wealth  may 
societies.  progress  rapidly  in  the  production  of  wealth  and 
make  possible  an  expansion  of  the  higher  wants  of  man. 
Such  a  dynamic  civilization  presents  infinite  possibilities 
for  individual  prosperity  and  social  welfare.  Our  study  of 
production  in  the  United  States  shows  conclusively  the 
dynamic,  progressive  character  of  American  civilization. 


TOPICS  FOR   CLASS   DISCUSSION 

1.  Why  does   the  question  of   the  control  of  the  railroads  in  the 
interest  of  the  public  present  especial  difficulties  in  America  ? 

2.  Has  the  government  built  and  operated  railroads  successfully 
in  any  country  ? 


Regulation  of  Transportation  205 

3.  Do  you  think  the  United  States  government  should  own  the 
railroads  in  this  country  now  ? 

4.  WTio  is  responsible  for  the  present  large  number  of  railroad 
accidents,  the  railroad,  the  public,  or  the  employee  ? 

5.  Is  federal  control  superior  to  state  control  of  railroads  ? 

6.  What  causes  led  to  the  passage  of  the  Interstate  Commerce 
Law? 

7.  What  were  the  leading  advantages  of  the  law  ? 

8.  In  what  respects  was  the  law  ineffectual  ? 

9.  How  have  the  provisions  of  the  original  Act  of   1887  been 
strengthened  by  later  legislation  ? 

10.  What  is  the  value  of  uniform  accounting? 

1 1 .  What  is  pooling,  and  why  was  it  made  illegal  ? 

12.  Would  all  rates  be  reasonable  and  just  if  made  on  the  basis  of 
distance  only  ? 

13.  Should  the  Interstate  Commerce  Commission  have  power  to 
fix  rates  ? 

REFERENCES 

American  Railway  Transportation  —  E.  R.  Johnson. 
Railway  Trafhc  and  Rates  —  E.  R.  Johnson  &  G.  G.  Huebner. 
Federal  Power  over  Carriers  and  Corporations  —  E.  P.  Prentice. 
Federal  Regulation  of  Railway  Rates  —  A.  N.  Merritt. 


PART   IV 
EXCHANGE   OF   WEALTH 

CHAPTER  XXVI 
Value  and  Price 

I.  Value 

1.  Nature  of  value  : 

a.  Its  general  meaning  > 

b.  Its  economic  meaning: 
(i)  It  arises  from  utility 

(2)  It  involves  scarcity 

(3)  It  may  apply  to  useless  things 

c.  Forms  of  economic  value 

2.  Value  in  use 

3.  Value  in  exchange: 
a.  Wliat  it  means 

h.  How  determined: 

(i)  By  marginal  utility  and  social  estimate 

(2)  By  supply  and  demand 

(3)  An  example 

II.  Price 

1.  What  price  is 

2.  Difference  between  prices  and  values 

3.  How  price  is  determined: 

a.  When  competition  is  free 
h.  When  competition  is  not  free 

Leaving  now  the  subject  of  the  production  of  wealth, 
we  pass  on  to  a  brief  consideration  of  some  of  the  more  im- 
portant problems  connected   with  its  exchange.     Wealth 

206 


Value  and  Price  207 

would  be  of  little  value,  if,  after  it  had  been  produced,  it 
were  not  transferred  from  one  individual  to  another.  It 
will  readil}'  be  seen  that  the  complex  conditions  of  modern 
industrial  Hfe,  due  to  separation  of  employments  and  divi- 
sion of  labor,  make  it  impossible  for  one  man  to  produce 
all  the  economic  goods  that  he  requires  for  his  own  consump- 
tion. The  process  by  which  he  secures  goods  from  others 
in  return  for  his  own  goods  is  known,  in  economics,  as  the 
exchange  of  wealth. 

Value.  —  Goods  would  not  be  desired  and  exchanged  for 
one  another,  unless  they  possessed  value.     In  a  popular 
sense,  the  term  "value "is  given  a  wide  appKcation.     We 
speak  of  the  value  of  an  individual  to  a  community  its 
or  of  the  value  of  an  educational  or  of  a  rehgious  ^  ^^^l 

°  General 

s}-stem  to  society.  In  this  sense,  the  term  refers  meaning.  ' 
to  the  desirable  quahties  in  the  person  or  institution.  In 
this  manner  we  think  of  "  personal  values,"  "  educational 
values,"  and  "religious  values"  —  each  one  of  these  phrases 
illustrating  the  general  meaning  of  the  term  "value"  as 
used  in  everyday  life. 

In  economics,  however,  the  term  "  value  "  has  a  special  sig- 
nificance and  arises  primarily  from  the  utihty  of  economic 
goods.  It  will  be  remembered  that  "  wants  "  are  Economic 
the  desires  which  individuals  have  for  economic  »«««»»''«• 
goods.  Utility  is  the  want-satisfying  quality  of  a  good. 
Therefore  any  economic  good  possessing  utihty  has,  in  con- 
sequence, economic  value. 

But  not  all  goods  are  economic;  some  are  free.  Occasion- 
ally things  are  so  plentiful  that,  although  they  have  utihty, 
they  do  not  possess  value  in  the  economic  sense.  For 
example,  water,  a  free  gift  of  nature,  may  or  may  not  have 
economic  value.     Frequently  it  has  not  because  it  is  not  an 


2o8  Elements  of  Economics 

economic  good,  —  no  one  would  give  something  upon  which 
he  had  spent  time  and  effort  in  exchange  for  it.  But,  to  a 
man  adrift  on  the  South  Pacific,  the  value  of  drinking  water 
would  be  inestimable,  —  he  would  give  anything  in  ex- 
change for  it.  Thus  in  addition  to  utility,  scarcity  is  neces- 
sary to  economic  value. 

It  has  already  been  pointed  out  that  utility  is  not  synony- 
mous with  usefulness.  Utility  is  simply  the  quahty  in  an 
economic  good  which  satisfies  a  want.  Now,  if  an  individual 
wants  something  that  is  not  useful,  this  useless  thing  will 
possess  utihty.  A  diamond  necklace  or  a  quart  of  whisky 
may  therefore  posssess  as  much  utility,  and  consequently 
value,  as  a  well-furnished  house  or  a  nourishing  diet.  We 
may,  therefore,  conclude  that  economic  value  is  the  worth, 
without  any  necessary  regard  to  the  usefulness,  that  is 
attached  to  economic  goods. 

If  now  we  stop  to  consider  for  a  moment,  we  shall  see 
that  this  worth  may  be  estimated  either  by  the  individual 
for  his  own  special  use,  or  by  the  whole  group  for  purposes 
Forms  of  of  exchange.  This  difference  in  the  methods  of 
value.  estimating  the  worth  of  economic  goods  gives  rise 

to  two  forms  of  economic  value:  value  in  use  and  value  in 
exchange. 

Value  in  use  is  purely  subjective;  that  is,  it  is  simply  an 
individual  estimate  of  the  worth  of  a  given  commodity. 
One  individual  may  value  the  utility  of  a  certain  economic 
good  far  more  highly  than  would  another  individual.  In 
Value  in  this  determination  of  value,  personal  peculiarities 
"^®-  play  a  large  part.     For  example,  a  silver  spoon 

that  has  become  an  heirloom  may  satisfy  such  an  intense 
want  in  an  individual  that  he  will  value  it  far  beyond  its 
intrinsic  worth.     This  individual  valuation  of  the  spoon  is 


Value  mtd  Price  2og 

clearly  not  a  measure  of  its  general  or  social  value.  While 
this  is  an  exaggerated  case,  nevertheless,  it  is  perfectly- 
true  that  individual  valuations  cannot  be  just  estimates 
of  values  put  upon  goods  by  society  as  a  whole.  Therefore, 
economics  is  concerned  primarily  with  the  second  kind  of 
value,  —  value  in  exchange. 

Value  in  exchange  is  a  social  valuation  placed  upon  an 
economic  good  by  a  number  of  persons.     Of  course,  a  good 
must  have  value  in  use  before  it  can  have  value  in  exchange. 
But,  in  determining  value  in  exchange,  the  good  vaiue  in 
is  looked  upon,  not  from  the  standpoint  of  its  exchange: 
utihty  to  a  single  individual,  but  from  the  point      ^'^"*"?- 
of  view  of  its  worth  to  a  whole  group  of  people.     Thus, 
value  in  exchange  is  the  social  estimate  of  the  general  worth 
of  an  economic  good  and  represents  the  "  power  of  a  good  to 
command  other  goods  in  exchange  for  itself." 

In  determining  this  exchange  value  of  a  commodity,  its 
utihty  naturally  plays  an  important  part.  But  utility, 
itself,  is  variable.  In  discussing  this  subject  under  the  head 
of  consumption,  we  saw  that  to  the  tired  traveler  the 
utility  of  the  first  apple  is  much  greater  than  the  How  deter- 
utiUty  of  the  third  apple;  and  that,  in  consum-  '»»««'^- 
ing  apples,  he  soon  reaches  a  stage  where  the  utility  is  so 
low  that  he  desires  no  more.  This  lowest  utility  of  the  apple 
is  called  its  marginal  utility,  and  it  is  upon  this  marginal 
utility  that  value  in  exchange  depends,  because  no  one  will 
give  more  for  apples  than  an  amount  representing  the 
satisfaction  which  he  expects  to  derive  from  the  last  apple 
which  he  consumes.  Furthermore,  it  is  not  the  marginal 
utility  of  a  commodity  to  a  single  individual  that  determines 
its  exchange  value;  but  it  is  its  marginal  utility  to  a  whole 
community  that  is  the  measure  of  this  value.  Thus,  cx- 
p 


2IO  Elements  of  Economics 

change  value  depends  upon  the  estimate  that  society  places 
on  marginal  utilities. 

In  determining  exchange  value  there  is  still  another  point 
that  must  not  be  overlooked.  The  value  of  an  economic 
good  varies  with  the  relation  of  supply  to  demand.  This, 
however,  is  only  another  way  of  saying  that  it  depends  upon 
marginal  utihty,  because  an  increase  in  the  supply  of  a  com- 
modity means  a  decrease  in  its  marginal  utility;  and  this, 
in  turn,  means  a  fall  in  value.  On  the  other  hand,  a  decrease 
in  the  supply  of  a  good  means  an  increase  in  its  marginal 
utility,  and  a  corresponding  rise  in  value.  From  this 
standpoint,  therefore,  the  amount  of  economic  goods 
(supply)  contrasted  with  the  intensity  and  prevalence  of 
wants  (demand)  determines  value  in  exchange. 

For  example,  if  the  demand  remains  the  same  and  there  is 
an  increase  in  the  supply  of  turkeys,  their  marginal  utility 
will  decline  and  their  exchange  value  fall.  But  if,  with  the 
approach  of  Christmas,  the  demand  for  turkeys  increases  and 
the  supply  remains  stationary,  the  marginal  utility  of  turkey 
will  become  greater  and  the  exchange  value  higher.  This 
relation  between  supply  or  goods,  on  the  one  hand,  and  de- 
mand or  wants,  on  the  other,  must  always  be  reckoned  with. 

Price.  —  Price  is  exchange  value  expressed  in  terms  of 
money.  When,  for  example,  we  wish  to  express  the  exchange 
value  of  some  commodity,  such  as  a  pear,  we  do  so  in  terms 
of  some  other  commodity  which  is  used  as  a  standard  of 
measuring  all  values.  We  do  not  say  that  the  pear  is  worth 
What  price  two  apples,  but  that  the  pear  is  worth  two  cents; 
*^*  because  money,  not  apples,  is  the  standard  by 

which  all  economic  values  are  measured.  Money  thus  be- 
comes a  common  denominator  of  value,  and  prices  are  ex- 
pressed in  terms  of  this  commodity. 


Value  and  Price  211 

It  will  be  observed  that  we  have  said  that  money  is  a 
commodity,  exactly  like  pears  or  apples.  This  is  true, 
because  money  is  merely  some  form  of  metal  which  is  as 
much  an  economic  good  as  oil  or  coal.  In  the  United  States, 
it  represents  gold.  Now  since  gold  is  a  commod-  Difference 
ity,  it  is  subject  to  the  same  law  of  value  as  any  pJc^s^a'Jid 
other  commodity.  That  is,  if  its  supply  increases  values, 
in  a  greater  proportion  than  the  demand,  its  value  will 
decrease  correspondingly.  Under  these  circumstances, 
therefore,  instead  of  pears  being  worth  two  cents,  they  may 
now  be  worth  three  cents;  and  the  prices  of  all  other  goods 
will  rise  similarly,  because  the  value  of  gold  (or  money)  has 
fallen.  Conversely,  if  the  supply  of  gold  diminishes  as  com- 
pared with  other  goods,  the  prices  of  commodities  will  fall 
because  the  value  of  gold  has  risen.  Consequently,  a  general 
rise  or  a  general  fall  of  prices  is  possible.  On  the  other 
hand,  there  can  be  no  general  rise  or  general  fall  of  values, 
because  exchange  value  represents  the  purchasing  power  of 
a  commodity;  that  is,  a  relation  between  two  commodities. 
If,  therefore,  the  value  of  one  of  these  goods  rises,  the  value 
of  the  other  must  fall.  If  a  pear  formerly  exchanged  for 
two  apples,  and  now  exchanges  for  three,  the  value  of  the 
one  has  increased  at  the  expense  of  the  other.  Therefore, 
there  can  be  no  general  rise  or  fall  in  values. 

Under  conditions  of  free  competition,  buyers  and  sellers 
meet  on  a  common  ground  —  the  market  place  —  and  there 
determine  price  by  deciding  as  to  the  value  of 
commocHties.     The   value   agreed   upon    is    the  determined: 
price,  and  it  is  expressed  in  terms  of  money.     The  W."'"  /";«/"•- 

'  -^  tttwn  ts  free. 

price  will  depend  upon  the  law  of  supply  and  de- 
mand governing  value.     The  seller  will  look  at  the  problem 
largely  from  the  .standpoint  of  production,  and  the  buyer 


212  Elements  of  Economics 

from  the  standpoint  of  consumption.  This  method  of  deter- 
mining price  is  still  in  vogue,  to-day,  in  backward  and  rural 
communities.  In  fact,  even  in  some  civiHzed  European 
countries,  such  as  Greece  and  Italy,  "  bargaining  "  is  still 
resorted  to  as  a  method  of  determining  prices.  Usually, 
however,  in  large  modern  societies,  the  one  price  system 
has  been  adopted.  That  is,  the  seller  estimates  the  value 
of  the  good  to  the  community  in  terms  of  price.  If  his 
estimate  is  correct  or  nearly  so,  he  sells  the  commodity ;  if 
not,  he  changes  the  price  to  conform  to  the  social  estimate. 
Thus,  price  represents  the  point  at  which  the  seller  and  the 
buyer  meet  in  their  estimate  of  value. 

From  this  discussion  we  have  seen  how  price  would  be 
determined  normally.  On  the  one  hand,  among  producers 
there  would  be  free  competition,  and,  on  the  other,  among 
consumers  there  would  be  wants  of  varying  degrees  of  in- 
Whencompe-  tensity;  while  the  law  of  supply  and  demand 
litionisnot  would  form  the  backbone  of  the  whole  process. 
■^''^^'  But  conditions  are  not  always  as  here  depicted. 

In  fact,  in  modern  industrial  society,  conditions  of  produc- 
tion are  continually  changing.  Competition  gives  way  to 
monopoly,  and  cost  of  production  plays  a  diminishing  part 
in  determining  prices.  Consequently,  in  this  absence  of 
competition  the  monopolist  fixes  the  price  at  a  point  which 
affords  him  the  greatest  monopoly  profit. 


TOPICS  FOR  CLASS  DISCUSSION 

1.  Does  every  good  possess   utility?     Is   everything  which   pos- 
sesses utility  a  good  ? 

2.  Have  the  following  utility:  whisky,  a  gambler's  pack  of  cards, 
clothes  of  antiquated  fashion,  opium,  grand  opera,  air  ? 


Value  and  Price  213 

3.  If  wealth  increases,  will  there  be  greater  well-being?     What  is 
the  relation  of  wealth  to  well-being  ? 

4.  Is  an  encyclopedia  wealth  ?     Among  Indians  ? 

5.  "Whisky   is   not   wealth.      It   has   no    permanent   value   for 
society."    In  what  sense  is  the  term  ''  value  "  used  ? 

6.  A  mercantile  establishment  advertises  "the  best  values  in  the 
city."     \\Tiat  is  meant  here  by  value  ? 

7.  Could  a  thing  have  value  unless  it  was  desired  ?     Unless  it  was 
scarce  ? 

8.  Draw  up  a  sentence  in  which  value  is  used  in  the  sense  in  which 
the  economist  uses  it. 

9.  Would  a  bag  of  gold  have  value  to  a  shipwrecked  sailor  on  a 
rocky  and  deserted  island  ?     Would  a  loaf  of  bread  ? 

10.  WTiat  is  "price"? 

11.  What  is  the  importance  of  the  idea  of  price  to  society  ? 

12.  Explain  the  relation  between  value  and  price. 

REFERENCES 

Introduction  to  Economics  —  H.  R.  Seager. 
Principles  of  Economics  —  E.  R.  A.  Seligman. 
Progress  and  Poverty  —  Henry  George. 
Principles  of  Economics  —  F.  A.  Fetter. 
Principles  of  Economics  —  Alfred  Marshall. 


CHAPTER   XXVII 

Price  and  Monopoly 

I.  Monopoly  power 

1.  How  measured 

2.  How  limited 

3.  Size  not  essential 

II.  Kinds  of  monopolies 

1 .  Industrial  monopolies  : 

a.  Created  by  law  : 

(i)  Through  control  of  natural  resources 
(2)  Through  patents  and  copyrights 

b.  Created  by  organization 

c.  Created  by  both 

2.  Franchise  monopoKes : 

a.  Transportation: 
(i)  Railroads 

(2)  Electric  traction 

b.  Power  and  light 

3.  Labor  monopolies : 

a.  Personal  monopoly 

b.  Organization  monopoly 

4.  Public  monopolies 

5.  Conclusion 

Monopoly  Power.  —  At  present,  monopoly  is  one  of  the 
chief  elements  in  fixing  price.  Popularly,  the  term  "mo- 
nopoly "  is  applied  to  any  large  industrial  organization. 
How  But  from  an  economic  standpoint,  an  organiza- 

measured.      (-Jqj^  jg  ^  monopoly  Only  when,  through  crushing 
competition  and  controlling  output,  it  is  in  a  position  to 

214 


Price  and  Monopoly  215 

raise  prices  above  a  competitive  level.  In  other  words,  a 
monopoly  is  an  organization  with  the  power  to  fix  price 
above  a  competitive  level.  The  only  real  measure  of  the 
existence  of  monopoly  is  its  price-fixing  power. 

Observe  that  while  price-fLxing  capacity  is  the  test  of 
monopoly,  it  does  not  necessarily  follow  that  the  monopoly 
can  fix  any  price  that  it  chooses.  For  example,  if  a  com- 
pany had  a  monopoly  of  iron  ore  and  fixed  the  price  at  a 
prohibitive  figure,  industry  would  substitute  How 
cement  for  iron  to  such  an  extent  that  either  limited, 
the  price  would  not  be  maintained,  or,  if  it  were  maintained, 
the  product  would  remain  unsold.  Thus  the  power  of  the 
consumer  to  substitute  one  commodity  for  another  limits 
the  power  of   monopoly  to  fix  any  price  it  might  desire. 

This  power  to  fix  price  which  determines  monopoly  may 
relate  to  the  production  of  a  commodity  on  a  very  large 
scale  or  on  a  very  small  scale.  For  example,  the  old  Stand- 
ard Oil  Company  unquestionably  had  monopoly  power  since 
it  had  the  power  to  fix  the  price  of  petroleum  and  petroleum 
products  above  a  competitive  level.  The  same  thing  is 
true  to-day  of  the  manufacturers  of  plate  glass  and  of  the 
manufacturers  of  print  paper.  These  businesses  are  very 
large  and  the  products  in  which  they  deal  are  widely  used 
and  of  great  value.  On  the  other  hand,  a  manufacturing 
company  may  be  engaged  in  the  production  of  articles  that 
are  used  by  only  a  few  people,  and  its  possibilities  of  growth 
may  thus  be  extremely  limited.  This  is  the  case,  size  not 
for  example,  with  the  manufacturers  of  psycho-  essential, 
logical  instruments.  But  even  here,  there  is  monopoly 
power.  In  fact,  the  demand  for  these  instruments  is  so 
small  that  those  who  make  them  charge  for  them  prices 
which  are  out  of  all  proportion  to  their  cost  of  production. 


2i6  Elements  of  Economics 

In  the  case  of  glass  and  paper,  the  monopoly  power  is  exer- 
cised to  a  limited  degree;  in  the  case  of  psychological 
appliances,  the  monopoly  power  is  very  great,  and  the 
monopoly  price  far  exceeds  the  competitive  one. 

Kinds  of  Monopolies.  —  MonopoHes  may  be  divided  into 
four  groups:  (i)  industrial  monopolies,  (2)  franchise 
monopolies,  (3)  labor  monopolies,  and  (4)  public  monopolies. 
Industrial  Industrial  monopolies  may  be  subdivided  into 
monopoUes:  t^j-ee  classes,  —  those  created  by  law,  those 
created  by  organization,  and  those  created  by  both  law  and 
organization. 

Industrial  monopoHes  are  created  primarily  by  law. 
They  base  their  monopoly  power  on  the  control  of  natural 
resources,  and  this  control  is  made  possible  only  through 
existing  forms  of  property  law.  Thus,  the  control  of  nat- 
ural resources,  sanctioned  by  law,  is  characteristic  of 
Created  by  most  industrial  monopolies.  The  development  of 
^'^'^-  modern  industry  has  taught  the  manufacturer 

that  his  highest  efifectiveness  can  be  maintained  only  when 
he  has  control  of  all  the  processes  of  production,  from  the 
raw  material  in  the  earth  to  the  finished  product  ready  for 
shipment.  Such  a  monopoly  control  of  resources  is  the 
most  effective  method  of  preventing  competition  because 
the  supply  of  natural  resources  is  limited  and  the  demand  for 
them  is  increasing.  The  International  Harvester  Company, 
which  controls  the  forests  from  which  it  cuts  the  timber  and 
the  mines  from  which  it  digs  the  iron  and  coal  for  the  manu- 
facture of  its  machinery,  is  typical  of  a  great  group  of  inte- 
grated industries.  Through  natural  resource  monopoly, 
the  great  industrial  corporations  are  enabled  to  fix  monopoly 
prices. 

Patents  and  copyrights  constitute  the  second  element  in 


Price  and  Monopoly  2ij 

maintaining  industrial  monopolies  created  by  law.  Al- 
though less  permanent  than  the  monopoly  of  natural  re- 
sources, patents  and  copyrights,  while  they  exist,  are  more 
absolute.  While  there  are  natural  resources  of  many  kinds 
in  different  parts  of  the  country,  a  patent  once  secured 
gives  to  the  owner  sole  right  for  many  years  to  manufacture 
that  particular  article.  The  same  thing  holds  true  of  copy- 
rights, trade-marks,  patented  processes,  and  the  like.  The 
bread  formulas  of  the  great  baking  companies,  the  cigar 
labels  and  trade-marks  of  the  cigar  manufacturers,  the 
patented  processes  for  making  paint  and  other  similar 
products,  are  all  illustrations  of  a  monopoly  power  based 
upon  this  form  of  legal  control. 

On  the  other  hand,  organization  may  be  the  primary 
factor  in  developing  an  industrial  monopoly.  The  American 
Ice  Company,  for  example,  is  dealing  in  a  product  which  may 
be  secured  almost  anywhere  in  the  northern  part  Creah-d  by 
of  the  United  States;  yet  it  is  able,  in  certain  "rsanhaiion. 
cities,  to  charge  a  monopoly  price  because  it  controls  the 
machinery  of  ice  dehvery  in  those  places.  In  the  same  way, 
largely  through  the  control  of  the  retail  tobacco  business, 
the  American  Tobacco  Company  was  enabled  for  many 
years  to  secure  monopoly  prices. 

In  most  of  the  industrial  monopolies,  however,  both  law 
and  organization  play  a  part.  The  United  States  Steel 
Corporation  depends  upon  its  natural  resources,  upon  its 
formulas,  and  upon  its  effective  business  organization. 
The  same  thing  is  true  of  the  International  Rub-  Created  by 
ber  Company,  and  of  a  number  of  other  large  *"'*• 
American  business  organizations  which  have  been  able  to 
keep  their  prices  above  a  competitive  level. 

The  second  form  of  monopoly,  a  monopoly  through  fran- 


2i8  Elements  of  Economics 

chise,  is  absolute.  If  the  franchise  is  perpetual,  the  monop- 
oly is  likewise  perpetual.  Even  though  provisions  are  made 
Franchise  in  franchises  to  limit  the  prices  which  shall  be 
monopolies:  charged  for  services,  monopoly  power  still  exists 
because  the  corporation  may  hx  the  price  above  a  competi- 
tive level.  This  kind  of  monopoly  usually  grants  the  privi- 
lege of  furnishing  transportation,  power,  or  light. 

The  greatest  form  of  franchise  monopoly  is  the  railroad. 
Enough  has  been  said  to  show  that  railroads  are  essentially 
monopolies,  and  to  show  that,  because  of  their  right  of 
eminent  domain  and  their  control  over  the  district  through 
Transpor-  which  they  pass,  they  are  enabled  to  fLx  monopoly 
tation.  prices,  —  exacting  "  all  that  the  traffic  will  bear.'' 

There  is  perhaps  no  better  illustration  in  the  country  of  the 
fixing  of  monopoly  price  than  that  furnished  by  the  railroad 
industry.  No  book  is  published  on  the  subject  of  railroad 
transportation  which  does  not  emphasize  the  thought  that 
the  predominant  factor  affecting  the  price  of  railroad  trans- 
portation, in  the  absence  of  some  form  of  competition,  is 
the  price  that  people  are  willing  to  pay. 

Suburban  electric  trolley  lines  are  assuming  a  position  of 
greater  importance  in  the  group  of  franchise  monopolies. 
Therefore,  as  interurban  transportation  develops,  the  fran- 
chises secured  by  the  present  interurban  companies  will 
give  them  almost  as  great  monopoly  power  as  that  now 
possessed  by  the  railroads.  It  is  in  cities,  however,  that 
the  franchise  monopoly  of  transportation  assumes  very  great 
importance.  Trolley  lines,  subways,  and  'bus  companies 
possess  great  monopoly  power.  For  example,  in  a  city  of 
one  million  and  a  half,  the  competitive  cost  of  transportation 
perhaps  does  not  exceed  two  and  one  half  cents  per  pas- 
senger, yet  the  actual  price  paid  by  the  passenger  is  usually 


Price  atid  Monopoly  219 

from  four  to  five  cents.  This  dift'erence  between  the  price 
paid  and  the  competitive  price  represents  the  extent  of  the 
monopoly  power. 

The  other  leading  form  of  municipal  franchise  monopoly 
—  the  monopoly  over  power  and  light  —  is  chiefly  seen  in 
the  control  of  electricity  and  gas.  Water  power  is  being 
gradually  converted  into  electric  power,  which  is  power  and 
transported  sometimes  as  far  as  two  hundred  and  ^^^''^■ 
fifty  miles.  The  present  widespread  use  of  coal  prevents 
the  power  companies  from  exercising  their  real  monopoly 
power,  but  in  the  course  of  the  next  century  the  diminution 
of  the  coal  supply  will  increase  the  monopoly  of  the  holders 
of  water  power  franchises.  Light,  too,  is  often  furnished 
through  franchise  monopolies.  They  carry  on  these  busi- 
nesses under  franchises  of  long  duration  by  means  of  which 
they  are  enabled  to  charge  prices  that  are  considerably  higher 
than  they  would  be  under  conditions  of  pure  competition. 

Labor  monopolies  may  be  in  the  form  of  personal  mo- 
nopoly or  of  a  monopoly  of  organization.  In  both  cases, 
they  aim  to  fix  the  price  of  labor.  Personal  monopoly, 
which  is  the  result  of  special  ability  or  training.   Labor 

,.     .  I  1         r    nionopo- 

is  m  very  distmct  contrast  to  the  monopoly  01  n^^. 
organization  which  is  the  result  of  cooperative   Personal. 
effort.     Personal  monopoly  demands  a  high  salary  for  the 
individual,  while  monopoly  of  organization  secures  stand- 
ardized   wages    and    proper    working    conditions    for    the 
members  of  the  group. 

The  trade-union  principle  is  necessarily  monopolistic;  that 
is,  it  attempts  to  fix  wages  without  regard  to  competition. 
The  object  of  the  union  is  so  to  organize  and  control  the 
supply  of  labor  that  competition  will  be  impossible.  Thus, 
a  price  will  be  fixed  which  will  represent  the  monopoly  power 


2  20  Elements  of  Economics 

of  the  organization  rather  than  the  productive  capacity  of 

the  individual  members  of  the  union  or  the  competitive  wage 

which  would  be  fixed  if  each  union  member  was 

Organiza- 
tion mo-         bargaining  individually  for  himself.     As  in  the 
nopoy.  ^^gg  ^£  railroads,  the  principle  which  dominates 

union  activity  is  "all  that  the  traffic  will  bear."  For 
example,  the  building  trades-unions,  which  have  a  great 
monopoly  power,  command  a  very  much  higher  wage  than 
some  of  the  more  skilled  operations  in  the  tailoring  trades 
where  unions  are  weak  and  monopoly  power  small.  In 
the  first  case,  the  supply  of  laborers  is  somewhat  limited ; 
in  the  second  case,  hordes  of  immigrants  overload  the  mar- 
ket and  make  a  competitive  wage  possible.  Since  labor 
has  been  organized  on  national  and  international  lines,  it 
has  greatly  enlarged  its  monopoly  power  and  increased  the 
possibility  of  controlHng  its  price. 

Public  monopolies  may  be  either  municipal,  state,  or 
national.  The  public  municipal  monopoHes  deal  with 
transportation,  water,  light,  the  control  of  sanitation  and 
health,  and  provision  for  police  and  fire  protection.  The 
state  monopolies  are  monopolies  of  hcense  fees,  incorpora- 
tion fees,  charter  granting,  and  the  hke.  The  national  mo- 
Pubiic  nopolies  include  the  carrying  of  mails,  the  printing 

monopolies,  ^f  documents,  the  building  of  irrigation  dams, 
and  other  activities  which  the  government  may  and  does 
assume.  To  be  sure,  in  these  monopolies,  prices  necessarily 
vary  from  the  competitive  rate.  In  fact,  the  prices  for 
some  government  services  are  considerably  below  the  com- 
petitive rate.  The  essential  factor  in  monopoly  is,  there- 
fore, not  the  fixing  of  a  high  price  through  monopoly  power, 
but  the  fixing  of  any  price  through  monopoly  power. 

The  number  of  ways  in  which  monopoly  power  is  expressed 


Price  and  Monopoly  221 

in  monopoly  price  is  constantly  increasing;  and  the  prob- 
lem of  monopoly  is,  therefore,  of  constantly  greater  concern 
to  the  modern  state.  In  a  monopoly  regime,  the  The  con- 
ordinary  laws  of  price  are  largely  suspended,  elusion. 
The  usual  laws  of  demand  and  supply  are,  for  the  time 
being,  thrown  into  the  background ;  and,  in  the  presence  of 
monopoly,  a  peculiar  condition  of  affairs  exists  whereby  price 
is  determined,  not  so  much  through  competition,  as  through 
some  form  of  monopoly  power. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  Define  monopoly. 

2.  Name  the  different  kinds  of  monopoly. 

3.  Mention  some  monopolies  of  which  you  have  knowledge,  and 
explain  what  monopoly  advantages  they  enjoy. 

4.  How  is  monopoly  price  determined  ? 

5.  Explain  the  difference  between  monopoly  price  and  competitive 
price. 

6.  State  the  law  of  monopoly  price. 

7.  What  advantages  are  claimed  for  public  ownership  of  natural 
monopolies  ? 

8.  Should  the  government  attempt  to  regulate  price  when  a  mo- 
nopoly is  shown  to  exist  ? 

9.  Is  it  desirable  in  the  government  to  allow  a  monopoly  to  charge 
different  net  prices  for  the  same  commodity  ? 

10.  What  relation  should,  in  the  interest  of  public  welfare,  be  estab- 
lished between  monopoly  and  price  ? 

REFERENCES 

Monopolies  and  Trusts  —  R.  T.  Ely. 
The  Problem  of  Monopoly  —  J.  B.  Clark. 
Principles  of  Economics  —  F.  A.  Fetter. 
Introduction  to  Economics  —  H.  R.  Seager. 
The  Theory  of  Prosperity  —  S.  N.  Patten, 


CHAPTER  XXVIII 

Instruments  of  Exchange 

I.  Money 

1 .  Primitive  method  of  exchange : 

a.  Barter 

b.  Its  difficulties 

2.  Modern  method  of  exchange : 

a.  Necessity  of  money 

b.  Uses  of  money 

c.  Characteristics  of  money 

d.  Kinds  of  money  : 
(i)  Early  forms 

(2)  Metallic  money 

(3)  Paper  money 

II.  Credit 

1.  Its  meaning 

2.  Kinds  of  credit : 

a.  Book  credit 

b.  Promissory  notes 

c.  Checks 

d.  Bills  of  exchange 

e.  Banking  operations : 
(i)  Issue  of  notes 

(2)  Deposit  of  money 

(3)  Discount  of  notes 

3.  Advantages  of  credit 

4.  Its  preservation 

Money.  —  In  primitive  communities,  exchange  is  accom- 
plished, without  the  use  of  money,  by  means  of  barter.  For 
example,  if  to-day  you  were  to  take  a  trip  to  Alaska  and 


Instruments  of  Exchange  223 

attempt  to  buy  frozen  fish  from  a  native,  you  would  be 
compelled  to  give  gold  dust  in  exchange  for  the  fish.     If  the 
fisher  woman  demanded  a  little  more  than  you  were  willing 
to  give  for  a  particular  fish,  you  would  add  to  primitive 
the  gold  dust,  grain  by  grain,  until  you  finally  exchange : 
reached  a  quantity  which  satisfied  both.     If  you 
desired  an  additional  fish,  you  would  be  compelled  to  go 
through  exactly  the  same  process,  —  the  amount  of  gold 
dust  varying  each  time  with  the  size  and  character  of  the 
fish. 

In  the  above  illustration  the  process  of  barter  was  rather 
easily  accomplished.  If  one  person  has  gold  dust  and  an- 
other person  has  fish  and  both  wish  to  exchange,  some  sort 
of  transfer  can  be  effected.  But  suppose  one  man  has  bear- 
skins and  another  has  fish,  and  neither  desires  what  the 
other  has,  the  problem  of  exchange  becomes  more  Difficulties 
comphcated.  Barter  is  inadequate  because  it  is  "^  ^'^'''^''■ 
extremely  difficult  to  find  two  persons  each  having  exactly 
what  the  other  desires,  and  each  willing  to  part  with  his 
possession;  and,  even  when  these  conditions  have  been 
met,  it  is  still  necessary  that  an  agreement  be  reached  as  to 
the  relative  values  of  the  goods  under  consideration. 

Consequently,  in  modern  society,  some  other  method  of 
exchange  becomes   imperative.     No   community  in  which 
the  exchange  of  commodities  is  a  difficult  and  cumbersome 
process  can  advance  to  any  considerable  degree  Modem 
of  civilization.     A  simple  and  effective  instru-   j^ 
ment  of  exchange  is  as  necessary  to  the  progress  necessary. 
and  welfare  of  mankind  as  are  improvements  in  the  process 
of  production  itself.     Therefore,  man  makes  use  of  money 
as  a  convenient  means  of  exchanging  one  commodity  for 
another.     Thus,  money  is  not  an  end  in  itself,  but  merely  a 


224  Elements  of  Economics 

means  of  securing  what  is  wanted  through  the  process  of 
exchange. 

Money,  therefore,  serves  two  useful  purposes.  In  the 
first  place,  it  is  a  common  measure  of  value,  serving  as  a 
medium  for  the  expression  of  values  in  terms  of  price. 
The  employment  of  money  as  a  common  denominator  of 
value  gives  rise  to  its  second  function  as  a  medium  of 
Uses  of  exchange.  By  means  of  it,  the  shoemaker 
money.  exchanges  his   shoes   for   food;    the   tailor,   his 

clothes  for  furniture ;  the  steel  manufacturer,  his  steel  for  a 
palatial  residence ;  in  short,  by  the  use  of  money,  every  one 
exchanges  his  particular  commodity  for  what  he  requires 
to  sustain  and  enjoy  life. 

If  money  is  to  be  used  to  measure  value,  it  must,  of  course, 
itself  possess  value ;  and,  furthermore,  this  value  must  be 
Character-  generally  recognized  throughout  the  community. 
istics  of  In  addition  to  this  characteristic,  money  must 
^°^^^-  also  be  durable  and  of  such  small  bulk  as  to  be 

easily  transferable.  The  needs  of  modern  society  demand 
that  money  possess  these  three  characteristics. 

In  primitive  communities,  many  things  were  used  as 
money  which  lacked  one  or  more  of  these  quahties.  For 
example,  Indian  "  wampum  "  was  of  no  great  value;  and 
Kinds  of  the  cattle  used  as  money,  centuries  ago  in 
money.  Europc,  would  not  to-day  be  considered  portable. 

In  the  same  manner  wheat,  although  having  universal  value, 
would  not  make  good  money  because  of  its  destructibility 
and  great  bulk.  Therefore,  men  have  employed  some  form 
of  metal  as  money.  In  early  societies,  as  in  Sparta,  iron 
was  used ;  and  in  other  places  copper  was  employed. 

To-day,  however,  gold  and  silver  fill  the  requirements  of 
money  much  more  perfectly  than  any  of  the  other  metals. 


Instruments  of  Exchange  225 

Besides  being  valuable,  portable,  and  durable,  they  are 
easily  divisible  into  small  parts,  each  one  of  which  possesses 
considerable  value.  To  facihtate  the  use  of  gold  and  silver 
as  money  and  to  standardize  the  value  of  the  amounts  used, 
the  government  takes  gold  and  silver  bullion  and  converts 
it  into  small  coins.  These  coins  are  stamped  by  the  govern- 
ment and  their  value  is  thus  guaranteed.  In  the  United 
States,  for  example,  the  dollar  is  invariably  equal  to  23.22 
grains  of  pure  gold  or  371.25  grains  of  pure  silver.  In 
each  case,  in  order  to  make  the  coin  more  durable,  alloy  is 
added  so  that  the  "  standard  weight  "  of  the  gold  dollar  is 
25.8  grains,  while  that  of  the  silver  dollar  is  412.50  grains. 
Thus,  metallic  money  is  simply  gold  or  silver  (or  some  other 
metal)  converted  into  a  special  form.  Therefore,  if  money 
is  plentiful,  that  is,  if  gold  and  silver  are  plentiful,  its  value 
decreases  as  would  that  of  any  other  commodity.  Since  its 
value  decreases,  a  particular  coin  is  able  to  purchase  less; 
and,  therefore,  there  is  a  general  rise  in  prices.  On  the 
other  hand,  should  the  supply  of  gold  and  silver  decrease 
and  money  become  scarce,  its  value  would  increase  in  pro- 
portion and  there  would  be  a  resulting  fall  in  prices. 

Metallic  money  is  a  great  step  beyond  barter.  It  stand- 
ardizes values  and  removes  the  disadvantages  connected 
with  individual  bargaining.  On  the  other  hand,  metallic 
money  has  certain  ob\'i()us  disadvantages.  It  is  bulky, 
clumsy  to  handle,  and  easily  lost.  These  objections  render 
metallic  money  less  desirable  than  an  advanced  form  of 
money  known  as  convertible  paper  money,  which  is  used 
side  by  side  with  metallic  money  in  civilized  societies. 
Paper  money  is  a  promise  to  pay,  and,  so  long  as  this  promise 
is  kept,  it  is  as  good  as  metallic  money.  In  fact,  it  has  some 
advantages  over  metallic  money.  It  is  more  easily  trans- 
Q 


226  Elements  of  Economics 

ported,  less  bulky,  and  much  more  readily  transferred  from 
one  individual  to  another.  On  the  other  hand,  it  is  more 
easily  debased.  During  the  French  Revolution,  during  the 
American  Revolution,  and  in  the  Southern  states  during 
the  Civil  War,  paper  money  was  issued  by  the  wagonload 
and  became  so  debased  that  it  required  hundreds  of  dollars 
to  buy  ordinary  commodities.  Nevertheless,  if  paper 
money  is  issued  and  guaranteed  by  a  wisely  directed  govern- 
ment, its  advantages  over  metalhc  money  are  so  great  as  to 
render  it  far  more  desirable. 

Credit.  —  Civilized  communities  make  use  of  another 
instrument  of  exchange  known  as  credit.  Paper  money  is, 
indeed,  a  form. of  credit;  but  to-day  there  are  many  other 
kinds  of  credit  in  use.  In  fact,  so  general  has  the  use  of 
credit  become  that  many  commercial  transactions  are  carried 
on  without  the  use  of  money  at  all.  Credit,  wherever  it  is 
employed,  signifies  confidence  in  business  relations.  The 
"  charge  and  send  "  of  the  modern  department  store  is  one 
of  the  most  widely  known  forms  of  credit.  In  a  primitive 
community,  because  of  the  uncertainty  of  the 

Its  meaning. 

future,   one  cannot  buy  goods  without  paying 

for  them  directly.     In  a  modern  stable  community,  however, 

it  is  perfectly  possible  to  buy  goods  "  on  credit."     Where  a 

man's  position  is  known,  his  ability  to  fulfill  his  financial 

obligations  is  so  well  understood  that  his  promise  to  meet 

them  at  the  proper  time  is  accepted  as  the  equivalent  of 

actual  payment. 

In  modern  business  there  are  five  kinds  of  credit  that  are 
Kinds  of  of  particular  interest :  (i)  book  credit ;  (2)  notes  ; 
credit:  ^^-^  checks ;   (4)  bills  of  exchange;  and  (5)  bank- 

ing operations. 

To-day,  book  credit  is  in  general  use  throughout  the  United 


Instruments  of  Exchange  227 

States,  being  characteristic  of  the  small  business  operations 
of  the  corner  grocery  store  as  well  as  of  the  great  commercial 
transactions  of  the  modern  department  store.  In  the  pur- 
chase of  groceries,  for  example,  you  may  buy  goods  for  a 
whole  month  without  .paying  a  single  cent ;  and,  at  the  end 
of  that  time,  the  grocer  sends  you  a  bill.  During  the 
month,  therefore,  you  have  been  recei\dng  goods    ^    ^     ^. 

•^  Book  credit. 

on  book  credit  because  the  grocer  had  confidence 
in  your  abihty  to  pay  him.     Likewise,  in  a  great  depart- 
ment store,  hundreds  of  dollars'  worth  of  goods  are  trans- 
ferred from  one  person  to  another  without  the  direct  pay- 
ment of  money. 

Notes  are  promises  to  pay  at  the  end  of  a  specified  time. 
For  example,  if  a  merchant  is  short  of  present  funds  but 
desires  to  make  an  immediate  purchase  of  goods,  he  gives 
his  note  for  sixty  days  in  payment  of  the  debt.  He  has  not 
the  money  now.  but  expects  to  have  it  in  the  near  Promissory 
future.  The  manufacturer  of  whom  he  buys  the  ""'"• 
goods  has  so  much  confidence  in  the  merchant's  abihty  to 
pay  at  the  end  of  the  time  specified  in  the  note  that  his 
promise  is  taken  instead  of  money. 

A  check  is  an  order  on  a  bank  to  pay  to  a  person  money 
which  he  himself  or  another  has  on  deposit  in  that  bank. 
A  lawyer,  for  example,  wishing  to  pay  his  doctor's  bill,  does 
not  give  him  actual  money,  but  sends  him  a  check  for  the 
required  amount.  The  physician  then  takes  this  check  to 
his  own  bank  (which  may  or  may  not  be  the  same 
as  that  of  the  lawyer)  and  either  has  it  cashed  or 
deposits  it  to  his  own  credit.  The  lawyer  does  exactly  the 
same  thing  when  he  receives  a  check  from  the  physician  in 
payment  of  professional  services  he  has  rendered.  In  case 
the  lawyer  and  the  doctor  (and  hundreds  of  others  in  like 


228  Elements  of  Economics 

positions)  have  accounts  at  different  institutions,  the  banks 
meet  together  in  a  "  clearing  house  "  and  there  settle  what- 
ever difference  may  exist  between  them  by  reason  of  the 
varying  amount  of  their  claims  on  each  other.  Through 
confidence  in  individuals  and  in  banking  institutions,  the 
use  of  checks  in  business  transactions  has  become  a  settled 
method  of  discharging  financial  obligations. 

Bills  of  exchange  also  greatly  economize  the  use  of  money. 
Such  a  bill  is  a  device  whereby  two  individuals  at  a  great 
distance  from  each  other  effect  a  payment  of  a  debt  without 
the  transfer  of  money  from  one  to  the  other.  Suppose,  for 
example,  a  New  York  importer  buys  goods  to  the  value  of 
$50,000  (or  £10,000)  from  a  London  exporter;  and,  at  the 
Bills  of  same  time,  a  New  York  exporter  sells  goods  of 
exchange.  ^]^g  same  valuc  to  a  London  importer.  Instead 
of  causing  $50,000  to  be  transported  twice  across  the  At- 
lantic, the  New  York  exporter,  to  whom  money  is  due,  sells 
to  the  importer  in  his  city  a  bill  of  exchange  for  $50,000. 
This  New  York  importer  then  indorses  and  sends  this  bill 
of  exchange  (which  constitutes  a  claim  on  the  London  im- 
porter for  £10,000)  to  the  London  exporter  who,  in  turn, 
presents  it  to  the  importer  in  his  own  city  and  receives  the 
£10,000  (or  $50,000)  due  him.  In  this  manner,  by  means  of 
banking  institutions  and  a  bill  of  exchange,  all  four  men  have 
been  satisfied  without  the  necessity  of  transferring  large 
sums  of  money  across  the  water. 

In  these  transactions  of  credit  it  may  readily  be  seen 
what  an  important  part  is  played  by  the  bank.  In  modern 
Banking  socicty,  the  bank  is  a  credit  factory,  and  its 
operations,  operations  in  turn  depend  upon  the  existence  of 
confidence  in  business  transactions.  The  issue  and  circula- 
tion of  its  notes  show  clearly  the  confidence  of  the  public 


Instruments  of  Exchange  229 

in  its  operations.  A  bank  note  is  simply  a  promise  to  pay 
based  on  the  resources  and  credit  of  a  banking  institution. 
If  the  bank's  resources  are  good,  its  notes  circulate  at  par. 
Its  standing  in  the  community  rests  entirely  upon  the  confi- 
dence which  men  place  in  its  financial  integrity.  In  the 
United  States,  national  bank  notes  are  issued  with  govern- 
ment bonds  as  a  basis;  hence,  their  value  is  practically 
assured  and  no  one  hesitates  to  accept  them. 

The  existence  of  confidence  in  banking  institutions  is  also 
seen  in  their  function  of  deposit.  People  deposit  money  in 
the  bank  for  the  purpose  of  saving  it,  or  for  the  purpose  of 
drawing  checks  against  it.  In  either  case  they  have  confi- 
dence in  the  bank.  If  they  deposit  for  the  purpose  of  sav- 
ing, the  bank  uses  the  money  commercially.  It  makes 
loans  to  industrial  enterprises,  receives  interest  in  return, 
and  then  pays  to  the  depositor  a  part  of  the  interest  thus 
received  for  the  money  used  in  industry.  Banks  accept 
check  accounts  because,  by  this  means,  they  secure  the 
use  of  surplus  money.  On  the  other  hand,  the  depositor 
opens  a  check  account  in  order  to  pay  his  bills  through  bank 
credits  without  the  intervention  of  money  transactions. 

Another  leading  function  of  banks  is  the  discounting  of 
notes,  bills  of  exchange,  and  other  forms  of  commercial 
paper.  A  merchant  may  have  a  note  payable  in  sixty  days 
and  wish  to  reali/.c  credit  on  this  note  without  delay.  By 
taking  it  to  the  bank,  he  secures,  in  return  for  it,  money  or 
credit  good  immediately.  Naturally,  for  this  accommoda- 
tion he  pays  a  discount,  which  is  one  of  the  chief  sources  of 
revenue  to  banking  institutions.  In  a  similar  manner,  bank- 
ing houses  discount  bills  of  exchange. 

From  this  brief  description  of  credit  and  credit  instru 
ments,  it  is  apparent  that  credit  is  one  of  the  most  impor- 


230  Elements  of  Economics 

tant  factors  in  facilitating  modern  commercial  transactions. 
The  advantages  of  credit  instruments  may  be  summarized 
as  follows:  (i)  they  economize  the  use  of  precious  metals; 
Advan-  (2)  they  save  labor  in  the    transfer  of   goods; 

tages  of         (3)  through   credits   in   a  savings   bank,    small 

credit.  .  ■,  1    •      1  1 

savmgs  may  be  amassed  in  large  sums  and  con- 
verted into  capital ;  (4)  through  banking  institutions,  large 
sums  of  money  may  be  secured  for  commercial  purposes  in 
return  for  a  promise,  made  under  certain  specifications,  to 
pay  back  the  loans. 

On  the  other  hand,  credit  leads  to  extravagant  living, 
stock  watering,  "high  finance,"  and  allows  much  specula- 
tion. Nevertheless  it  is  one  of  the  most  effective  tools  in  the 
hands  of  modern  society.  Its  value  is  fundamental;  its 
abuses  incidental.  Credit  represents  one  of  the  great  steps 
in  the  advance  of  commercial  development.  The  urgent 
Its  pre-  demand  at  the  present  time  is  for  its  preserva- 
servation.  ^^^^  ^^^  safeguarding.  Since  credit  is  so  essen- 
tial to  modern  welfare  and  prosperity,  every  possible  device 
should  be  employed  to  insure  its  integrity.  Stringent  reg- 
ulations should  be  made  and  enforced  in  order  to  prevent  its 
improper  employment  in  "high  finance." 


TOPICS  FOR  CLASS  DISCUSSION 

1.  Could  the  exchange  system  be  as  complex  as  it  is  to-day  if  we 
depended  upon  barter  alone  ?  Would  the  productive  process  be  as 
efl&cient  ? 

2.  Can  you  cite  any  cases  of  barter  being  used  to-day  ? 

3.  What  difficulties  of  a  system  of  barter  are  overcome  by  the 
use  of  money  ? 

4.  Name  the  qualities  desirable  in  money. 

5.  Mention  different  things  that  have  been  used  as  money. 


Instruments  of  Exchange  231 

6.  Would  the  following  make  good  money:  iron,  wheat,  diamonds, 
glass  beads,  seashells,  beaver  skins  ?     If  not,  why  not  ? 

7.  i\re  there  any  of  the  functions  of  money  which  would  not  be 
satisfactorily  performed  by  the  commodities  mentioned  in  the  pre- 
ceding question  ? 

8.  Are  there  any  respects  in  which  gold  is  superior  as  money  to 
the  above-mentioned  commodities  ?  If  so,  explain  the  superiority  in 
each  case. 

9.  Why  are  copper  and  nickel  used  for  coins  ? 

10.  What  are  the  advantages  of  paper  money  ?     Its  dangers  ? 

11.  \\Tiat  different  meanings  has  the  word  "credit"?     In  which 
sense  is  it  most  often  used  in  economics  ? 

12.  What  is  a  check  ?     A  bill  of  exchange  ? 

13.  \\Tiat  effect  does  credit  have  upon  the  productiveness  of  capital  ? 

14.  What  are  the  evils  of  credit  ? 

15.  How  may  these  evils  be  remedied  ? 

REFERENCES 

Funds  and  Their  Uses  —  F.  A.  Cleveland. 
Money  and  Banking  —  W.  A.  Scott. 
]\Ioncy  and  Currency  —  J.  F.  Johnson. 
Principles  of  Money  —  J.  L.  Laughlin. 


CHAPTER  XXIX 

Modern  Finance 

I.  Evolution  of  modern  finance 

1.  Importance  of  funds 

2.  How  secured : 

a.  In  former  days 

h.  At  the  present  time : 

(i)  Through  corporations 

(2)  Through  "  trust  finance" 

II.  How  companies  are  formed 

1 .  A  slate  company  : 

a.  The  "  promoter  "  : 

(i)  His  first  steps 

(2)  His  later  steps 
h.  The  company  organized : 

(i)  How  accomplished 

(2)  How  stocks  are  "  floated  " 

2.  United  States  Steel  Corporation  : 
a.  How  formed 

h.  Its  capitalization 

III.  Results  of  modern  finance 

1.  Chief  advantages 

2.  A  great  danger 

3.  Other  evils 

4.  Conclusion 

Evolution  of  Finance.  —  The  latest  development  of  credit, 
as  appUed  to  industry,  appears  in  the  financing  of  great 
business  concerns.  Credit  is  intimately  connected  with 
modem  finance  because,  by  means  of  it,  the  business  world 
is  able  to  secure  large  sums  of  money  with  which  to  finance 

232  . 


Modern  Finance  233 

its  propositions.     To  carry  on   any  business  whatsoever, 
funds  in  some  form  are  essential,  since  they  may  importance 
be  exchanged  for  land,  labor,  and  capital.     The  °^  fimds. 
procuring  of  these  funds  constitutes  one  of  the  chief  duties 
of  the  business  organizer. 

In  the  early  part  of  the  nineteenth  century  business  was 
conducted  largely  on  an  individual  or  partner-  ylow 
ship  basis.     One  man,  with  a  small  amount  of  secured: 
capital,  went  into  business  for  liimself.     Or,  if  *"^'  ^''^^■ 
he  did  not  have  sufficient  funds,  he  went  into  partnership 
with  two  or  three  of  his  friends  who  entered  into  an  agree- 
ment with  him  and  helped  in  the  business  management. 

This  simple  method  of  securing  funds  proved  inadequate, 
and  was  succeeded  by  the  corporation,  which  possesses  so 
many  advantages  over  the  partnership  method  that  it  has 
revolutionized   the  system  of  business  finance. 

T        1        '  1  1  1      1       •  "'^'  present. 

In  the  first  place,  through  the  issue  of  stocks  and 
bonds,  enormous  funds  become  available  for  industrial 
purposes.  At  the  same  time,  according  to  the  law  of  cor- 
porations, the  liabihty  of  each  shareholder  is  hmited  to  the 
amount  he  has  invested.  Then,  again,  the  corporation 
continues  as  long  as  its  charter  permits.  If  one  director 
dies,  another  is  elected  to  fill  his  place.  Finally,  while  a 
hundred  thousand  people  may  hold  stock  of  a  corporation, 
a  small  group  of  men  manages  its  affairs  efficiently.  For  all 
these  reasons  the  corporation  marks  a  great  advance  in  the 
evolution  of  modern  finance. 

The  next  step  in  this  evolution  of  finance  accompanies  the 
development  of  that  form  of  business  organization  known  as 
the  trust.  Although  the  board  of  trustees  (from  which  body 
we  get  the  name  "  trust  ")  has  been  declared  illegal,  its 
essential   feature  —  the  absolute    ccntrahzation  of   capital 


234  Elements  of  Economics 

and  business  control  —  still  exists  in  some  form  of  the  hold- 
ing company.  Instead  of  appointing  a  board  of  trustees 
which  holds  stock  of  other  companies,  the  promoters  of  the 
trust  organize  a  new  corporation.  Here  is  the  opportunity 
of  amassing  colossal  sums  of  capital  and  of  having  these 
enormous  funds  managed  by  central  control.  To  bring 
about  these  results,  questionable  methods  have  often  been 
employed  and  have  given  rise  to  the  phrase  "  trust  finance." 
But,  although  "  trust  finance  "  may  be  used  for  illegitimate 
purposes,  it  is  by  no  means  necessarily  illegitimate  in 
character. 

How  Companies  are  Formed.  —  To  reahze  more  clearly 
the  nature  of  this  kind  of  finance,  let  us  examine  the  usual 
method  of  organizing  an  industrial  company.  Compara- 
tively few  people  really  understand  the  procedure  involved 
in  converting  a  business  proposition  into  marketable  securi- 
ties through  the  medium  of  modern  finance.  Suppose  in  a 
A  slate  region  fifty  miles  square  there  is  located  a  group 

company:  q£  slate  quarries  capable  of  producing  the  only 
slate  in  the  neighborhood.  Here  is  a  natural  resource 
furnishing  an  excellent  basis  for  a  combination  of  interests 
and  requiring  only  that  sufficient  funds  be  secured  for  its 
development. 

Looking  over  this  field,  the  ''  promoter  "  —  the  man  who 
organizes  and  directs  combinations  of  capital  —  plans  a 
definite  proposition.  After  careful  consideration  of  all 
aspects  of  the  question,  he  concludes  that  it  is  possible  to 
form  a  combination  to  control  slate  production  in  this 
The  "  pro-  region.  He  first  goes  to  the  bankers  who  in  the 
moter."  ^^^^  have  assistcd  him  in  financing  his  enterprises, 

explains  the  situation  to  them,  and  asks  for  their  coopera- 
tion.    If  they  have  confidence  in  the  promoter  and  if  the 


Modern  Finance  235 

scheme  sounds  interesting,  they  agree,  in  the  event  of  the 
proposition  proving  desirable,  to  render  him  any  necessary 
financial  assistance. 

Ha\dng  thus  secured  his  backing,  the  promoter  proceeds 
into  the  slate  region  and  goes  from  quarry  to  quarry  buying 
up  options.  That  is,  he  secures  for  perhaps  one  thousand 
dollars  the  right  to  purchase  for  a  stated  sum  a  slate  quarry 
at  any  time  before  the  end  of  two  years.  If  the  promotion 
is  successful,  the  promoter  returns  after  a  few  months  to  his 
banking  house  and  states  that  he  has  secured  options  on  all 
the  properties.  He  also  makes  a  report  concerning  their 
capacity,  the  quahty  of  their  product,  the  possibiHty  of  their 
development,  and  the  prospect  of  effecting  economies. 

If,  at  this  stage,  the  proposition  looks  unfavorable,  it  is 
dropped.     If,  however,  it  seems  feasible  to  organize  a  suc- 
cessful combination,  a  charter  is  appHed  for  and  the  com- 
pany incorporated  ;  stocks  and  bonds  are  issued  by  it ;  and 
the  options  on  the  various  slate  properties  are  taken  up. 
Perhaps  these  stocks  and  bonds  are  given  to  the  jf^^  ^^,^. 
owners  of  the  slate  quarries  in  return  for  their  pany  or- 
properties.     It  may  be,  however,  that  the  owners 
insist  on  cash  payment.     In  this  case,  the  stocks  and  bonds 
are  taken  by  the  banking  house  and  "  floated."     This  is 
done  by  the  agents  of  the  banking  house  travehng  over  the 
country,  visiting  financial  institutions,  trust  companies,  or 
individuals  likely  to  buy  such  securities  and  attempting  to 
sell  those  of  the  newly  organized  company. 

These  securities  may  be  listed  on  one  or  more  stock  ex- 
changes. In  that  case  they  are  sold  to  the  general  public, 
if  people  choose  to  buy  them  in  the  usual  way.  By  what- 
ever method  the  promoter  and  his  banks  proceed,  however, 
the  ultimate  aim  of  the  company  is  to  unload  the  securities 


236  Elements  of  Economics 

on  the  public,  organize  the  business  on  an  efficient  basis, 
and  make  it  pay  dividends  on  the  securities  issued.  If  the 
promoter  has  used  good  judgment  and  if  the  company  is  not 
overcapitahzed,  the  new  corporation  has  a  good  chance  of 
success.  Confidence  on  the  part  of  investors,  however,  is 
absolutely  essential  to  the  process  of  successful  promotion. 

This  description  of  the  organization  of  a  hypothetical 
company  to  control  the  slate  business  in  a  given  locality 
has  been  paralleled  a  hundred  times  in  the  course  of  the 
last  twenty  years.  The  organization  of  the  United  States 
Steel  Corporation  was,  in  a  large  way,  an  almost  exact  dupli- 
cate of  the  slate  quarry  example,  except  that  the  proposition 
United  ^°  Consolidate  the  steel  interests  was  most  wel- 

States  come    to    the    steel    manufacturers    themselves, 

poration:  Competition  had  been  very  severe.  Numerous 
Ho'd:  small    trusts   had   been   formed.     The    Morgan 

forme  .  interests,   well   acquainted   with   this   situation, 

undertook  to  organize  a  combination  of  all  of  the  independ- 
ent producers.  Gradually  the  principal  companies  were 
consolidated,  with  the  exception  of  the  Carnegie  Steel  Com- 
pany, which  refused  to  combine.  In  reply  to  the  trust's 
threats,  Mr.  Carnegie  proposed  to  erect  a  steel  plant  on 
Lake  Erie  which  would  produce  steel  rails  more  cheaply 
than  any  plant  the  trust  then  owned.  Eventually,  however, 
the  Carnegie  plant  was  bought  out  at  Carnegie's  own  price, 
about  $350,000,000. 

At  its  inception,  the  steel  trust  was  overcapitalized  be- 
cause of  the  enormous  prices  which  some  of  the  consolidat- 
its  capital-  ing  firms  received  for  their  plants,  and  because 
tzahon.  ^f  ^]^g  great  bonuses  secured  by  the  promoters. 

However,  the  reconstruction  of  the  plant  and  the  purchase 
of  the  Tennessee  Coal  and  Iron  Company  established  the 


Modern  Finance  237 

trust  on  a  strong  basis.  This,  together  with  the  reorgani- 
zation of  steel  manufacturing  which  the  steel  trust  has  re- 
cently effected,  renders  it  very  probable  that  at  the  present 
time  the  total  capitalization  of  the  trust  (almost  one  billion 
and  a  half  dollars)  represents  something  like  actual  value. 

Results  of  Modern  Finance.  —  The  advantages  of  modern 
finance  are  twofold.  In  the  first  place,  the  corporation,  as 
financed  by  the  modern  banker,  gives  the  aggressive  business 
man  an  opportunity  to  secure  large  funds  of  capital.  At  the 
same  time,  the  small  investor  is  enabled  to  invest  chief  ad- 
sums  of  capital  in  a  large  progressive  business,  and  vantages, 
thus  become  a  participant  in  a  successful  enterprise.  Neither 
of  these  transactions  would  be  possible  without  the  institu- 
tion of  credit.  Stocks  and  bonds,  which  together  form  one 
of  the  most  important  kinds  of  credit  instruments  in  modern 
industry,  furnish  a  common  basis  for  the  small  investor  and 
the  large  industrial  enterpriser.  Of  course,  the  savings 
bank  may  occasionally  intervene  between  these  two;  but, 
nevertheless,  they  finally  come  together  through  the  medium 
of  securities. 

Financial  methods,  as  employed  by  the  holding  company 
of  to-day,  have  wrought  wonderful  changes  in  our  financial 
and  industrial  system.  Fifty  years  ago,  the  Steel  Trust 
would  have  been  considered  an  impossibility  because  it  was 
generally  believed  that  no  single  business  con-  a  great 
cern  could  finance  and  manage  so  large  an  enter-  danger, 
prise.  Gradually,  however,  men  learned  how  to  integrate 
individual  industries.  This  was  considered,  and  rightly  so, 
a  wonderful  achievement.  It  was  followed,  however,  by 
the  development  of  financial  centralization  which  per- 
mitted one  management  to  control  several  integrated  indus- 
tries.    By  means  of  this  financial  control,  it  might  be  pos- 


238  Elements  oj  Economics 

sible  for  effective  power  over  all  industrial  enterprise  to  be 
centered  in  the  hands  of  a  half  dozen  financiers. 

Other  evils  are  incident  to  the  system  of  modern  finance. 
Chief  among  these  are  overcapitalization,  "  stock  water- 
ing," and  public  deception  regarding  the  value  of  securities. 
All  of  these  are  related  to  each  other,  but  the  one  most 
generally  denounced  is  "  stock  watering."  This  results 
from  the  fact  that  the  par  value  of  the  stock  does  not 
represent  its  real  value.     The  difference  between 

Other  evils. 

these  two  values  is  the  "  water  "  in  the  stock. 
It  can  readily  be  seen  what  injury  is  done  to  good  business 
management  when  dividends  are  paid  on  an  amount  of 
wealth  larger  than  that  which  is  actually  engaged  in  pro- 
ductive enterprise.     Paper  values  are  not  real  values. 

Every  effort  should  be  made  to  preserve  the  legitimate 
character  of  modern  finance.  Finance  is  a  development  of 
credit  and  depends  upon  credit  for  accomplishing  its  pur- 
pose. No  sanction,  therefore,  should  be  given  the  methods 
of  those  financiers  who  by  their  misrepresentations  serve  to 
The  con-  weaken  public  confidence.  Their  acts  should  be 
elusion.  rigidly  scrutinized  and  a  sharp  distinction  drawn 
between  legitimate  and  illegitimate  financiering.  Social 
welfare  is  largely  dependent  upon  the  maintenance  of  a  high 
standard  of  integrity  in  the  development  of  modern  finan- 
cial methods. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  is  the  function  of  a  promoter  ? 

2.  Explain  the  steps  by  which  a  trust  is  organized. 

3.  What  is  meant  by  the  "capitalization"  of  a  trust  ? 

4.  On  what  basis  is  the  amount  of  capitalization  determined  ? 

5.  What  is  stock  watering  ?     Why  is  it  resorted  to  ? 

6.  Does  stock  watering  harm  the  public  ?     The  investor  ? 


Modern  Finance  239 

7.  Could  large  scale  production  be  carried  on  without  modern 
systems  of  financiering  ? 

8.  Explain  the  organization  of  the  Steel  Trust.     Of  the  old  Stand- 
ard Oil  Company. 

9.  What  principles  of  finance  are  illustrated  by  these  two  organi- 
zations ? 

10.  What  measures  must  be  adopted  to  regulate  financiering  ? 

REFERENCES 

Trust  Finance  —  E.  S.  Meade. 

Trusts,  Pools,  and  Corporations  —  W.  Z.  Ripley. 

The  Story  of  Iron  and  Steel  — J.  R.  Smith. 

The  History  of  the  Standard  Oil  Company  —  I.  M.  Tarbell. 

The  Trust  Problem  —  J.  W.  Jenks. 


CHAPTER  XXX 

Foreign  Trade 

I.  The  underlying  principle 

1.  Why  men  trade 

2.  How  trade  developed 

3.  International  trade : 

a.  Its  primary  basis 

b.  The  disturbing  factors  : 
(i)  Commercial  expansion 
(2)  Overproduction 

c.  American  foreign  trade : 
(i)  Chief  exports 

(2)  Chief  imports 

II.  General  features  of  foreign  trade 

1.  Its  chief  characteristics : 
a.  World  markets 

h.  Standard  prices 

c.   Method  of  payment 

2.  How  it  is  restricted  : 

a.  Chief  kinds  of  restrictions 
h.  Purpose  of  protection 
c.  The  result  accomplished 

Of  the  various  problems  that  arise  in  a  discussion  of  the 
exchange  of  wealth,  none  is  more  important  than  the  trade 
relations  of  civilized  communities.  In  fact,  foreign  trade 
is  vitally  connected  with  modern  industrial  life. 

The  Underlying  Principle.  —  It  is  perfectly  obvious  that, 
in  the  present  stage  of  the  world's  economic  development, 
an  individual  cannot  produce  a  sufficient  variety  of  economic 

240 


Foreign  Trade  241 

goods  to  satisfy  his  manifold  wants.  This  is  an  age  of 
specialization  in  production  and  of  minute  subdivision  in 
labor.  For  example,  one  man  or  a  group  of  why  men 
men  produces  nothing  but  woolen  goods  ;  another  ^'■*^®- 
confines  his  attention  exclusively  to  the  production  of  food 
stuffs;  while  a  third  concentrates  all  his  time  and  effort 
upon  the  construction  of  building  materials.  If  each  man, 
therefore,  consumed  only  what  he  produced,  many  of  his 
wants  would  remain  unsatisfied.  He  must  consequently 
trade  with  his  fellow  men  and  secure  from  them,  in  exchange 
for  the  results  of  his  own  labor,  the  commodities  which 
they  produce  that  are  essential  to  his  happiness.  In  modern 
communities,  therefore,  individual  and  social  welfare  is 
absolutely  conditioned  upon  the  free  interchange  of  com- 
modities. 

Of  course,  in  primitive  societies,  this  problem  of  exchange 
was  comparatively  insignificant.  Every  individual  pro- 
duced^ in  some  fashion,  all  that  was  absolutely  needed  to 
sustain  life,  and  his  wants  being  few  and  undeveloped,  he 
was  not  dependent  upon  the  labor  of  his  fellow  man.  To- 
day, however,  the  trade  relations  of  society  have  developed 
to  such  an  extent  that  nations  war  upon  each  other  in  order 
to  secure  the  benefits  accruing  from  wider  trade  How  trade 
relationships.  Beginning  with  insignificant  lo-  developed, 
cal  exchanges,  the  sphere  of  trade  gradually  widened  until 
it  extended  to  a  free  interchange  of  commodities  produced 
within  the  same  country.  Thus  domestic  trade  was  estab- 
lished. But  as  the  facilities  for  transportation  developed, 
a  nation's  trade  expanded  beyond  the  confines  of  its  own 
borders  until  domestic  trade  was  supplemented  by  foreign 
trade.  In  this  way  there  was  inaugurated  international 
trade  which  now  plays  such  an  important  part  in  the  life 


242  Elements  oj  Economics 

of  all  great  commercial  nations.  In  fact,  the  existence  of 
nations  sometimes  depends  upon  the  preservation  of  their 
international  trade.  Should  England,  for  example,  at  the 
present  time  be  cut  off  from  her  trade  connections  with  the 
rest  of  the  world,  her  people  would  suffer  severely  from 
the  curtailment  of  their  food  supply. 

The  underlying  economic  principle  of  international  trade 
arises  primarily  from  the  character  of  natural  resources 
and  from  the  fact  that  certain  parts  of  the  world  are  pecul- 
iarly fitted  for  the  production  of  particular  commodities. 
For  example,  coffee  grows  well  in  Brazil;  tea  is  cultivated 
in  China ;  and  cotton  is  cheaply  grown  in  the  southern  part 
of  the  United  States.  In  a  similar  manner,  Canada,  the 
United  States,  South  Africa,  and  Australia  easily  produce 
wheat;  while  northwestern  Europe,  by  reason  of  its 
Interna-  mineral  deposits,  is  peculiarly  suited  to  manu- 
taona  tra  e:  fa^f-tuj-fnor.     Thus,  each  of  these  areas  has  a  spe- 

Its  pri-  "  '  ^ 

mary  basis,  cialty  for  which  it  might  well  seem  that  nature 
intended  it.  This  local  fitness  for  production,  due  to  favor- 
able physical  conditions,  is  the  primary  basis  for  interna- 
tional trade.  Even  to-day,  in  spite  of  national  prejudices, 
this  principle  of  international  exchange  asserts  itself. 

In  addition  to  the  influence  of  national  solidarity,  two 
other  factors  interfere  with  the  full  utilization  of  this  physi- 
cal basis  for  international  trade.  In  the  first  place,  a  com- 
mercially expanding  nation  with  large  resources  and  limited 
markets  aims  to  secure  additional  trade  in  spite  of  the  law  of 
The  disturb-  local  fitucss.  For  this  reason,  although  north- 
tng  factors,  westcm  Europc  is  peculiarly  suited  to  manufac- 
turing, many  large  American  trusts  enter  European  markets, 
and,  notwithstanding  the  extra  cost  of  transportation,  sell 
their  products  there  more  cheaply  than  at  home.     In  the 


Foreign  Trade  243 

second  place,  surplus  products  are  often  "  dumped  "  in  a 
foreign  market.  That  is,  when  a  manufacturer  finds  that 
he  has  produced  more  goods  than  can  be  sold  at  home,  he 
sells  them  abroad  at  greatly  reduced  prices.  In  both  these 
cases,  the  principle  of  local  fitness  has  been  violated. 

In  order  to  ascertain  whether  this  principle  is  generally 
obser\'ed  in  American  foreign  trade,  let  us  examine  the 
character  of  American  exports  and  imports.  Although  the 
amount  of  manufactured  goods  which  the  United  States 
exports  is  gradually  increasing,  agricultural  products  make 
up  half  of  our  export  trade.  Chief  among  our  exports  are 
cotton,  provisions,  iron  and  steel  manufactures,  bread- 
stuffs,  copper  and  its  products,  mineral  oils,  4,„gyjca„ 
gold  and  its  products,  live  stock,  tobacco,  and  foreign 
agricultural  implements.  On  the  other  hand,  the 
imports  of  the  United  States  consist  largely  of  sugar,  cofifee, 
chemicals,  drugs  and  dyestuffs,  cigars,  raw  silk,  India  rubber, 
wool,  jewelry  and  precious  stones,  fruit  and  nuts,  and  some 
copper  and  iron  manufactures.  In  a  general  way,  therefore, 
the  United  States  exports  what  the  country  is  fitted  to  pro- 
duce and  imports  what  other  countries  are  especially  able 
to  turn  out.  Although  there  are  some  striking  exceptions 
to  the  rule,  the  trade  relations  of  the  United  States  may  be 
said,  for  the  most  part,  to  conform  to  this  general  economic 
principle. 

General  Features  of  Foreign  Trade.  —  To-day  interna- 
tional trade  has  taken  on  some  well-defined  characteristics. 
In  the  first  i)lacc,  certain  localities  have  developed  its  charac- 

tcristics  > 

into  world  markets ;  that  is,  dcfmite  places  have   jj^^^^^ 
become  centers  of  trade  for  particular  commodi-  markets. 
ties.     For  example,  Chicago  and  Liverpool  are  world  mar- 
kets for  wheat.     Each  of  these  markets  feels  the  effect  of 


244  Elements  of  Economics 

adverse  conditions  in  the  other.  If  there  should  be  a  wheat 
famine  in  Europe  and  an  abundant  crop  in  the  United  States, 
the  export  trade  of  the  United  States  in  this  commodity 
would  increase  enormously.  On  the  other  hand,  if  condi- 
tions were  reversed,  American  exports  would  fall  off. 

In  this  manner,  prices  of  standard  commodities  are  fixed  in 
world  markets,  because  the  condition  of  one  market  offsets 
that  of  the  other  and  prevents  great  price  fluctuations. 
While,  normally,  prices  largely  depend  on  conditions  of 
production,  they  themselves  determine  the  movement  of 
international  trade,  and  this,  in  turn,  brings  about  an  equi- 
standard  Ubrium  in  price.  Thus,  in  response  to  the  dif- 
prices.  fercuce  in  prices  at  two  centers,  wheat  may  be 

shipped  from  one  country  to  another,  —  a  movement  which 
will  ultimately  result  in  this  difference  in  price  being  largely 
eliminated.  With  increased  exportation  (demand),  low 
prices  will  gradually  rise ;  and  with  increased  importation 
(supply),  high  prices  will  gradually  fall.  The  cable,  the 
telegraph,  and  telephone  easily  make  known  these  differ- 
ences, and  a  gradual  equihbrium  in  price  is  effected. 

Another  unique  feature  of  international  trade  is  the  fact 
that  it  is  carried  on  largely  without  the  use  of  money.  The 
exports  of  a  country  are  used  to  pay  for  its  imports.  If  the 
two  amounts  always  balanced,  no  money  of  course  would  be 
needed.  When  exports  are  greater  than  imports,  however. 
Method  of  somc  method  of  payment  must  be  devised.  For 
payment.  example,  if,  during  a  certain  period,  the  United 
States  exports  to  England  $100,000,000  worth  of  goods  and 
imports  from  England  $75,000,000  worth  of  goods,  England 
at  the  end  of  that  time  owes  the  United  States  $25,000,000. 
As  we  have  seen  in  the  chapter  on  Instruments  of  Exchange, 
the  usual  method  of  canceling  foreign  debts  is  through  bills 


Foreign  Trade  245 

of  exchange,  which  make  the  actual  transport  of  large  sums 
of  money  across  the  water  unnecessary.  Occasionally, 
however,  gold  may  be  shipped  from  one  country  to  another 
either  to  settle  a  trade  balance,  or  to  obviate  the  payment 
of  high  rates  on  bills  of  exchange. 

In  one  form  or  another,  certain  restrictions  have  always 
been    placed    on    international    trade.     In    America    the 
Navigation  Acts  of  Parliament  were  followed  by  the  tariff 
acts  of  our  own  government,  which  serve  indi-  its  restric- 
rectly    to    restrict    freedom   of    commerce.     Of  ^^.^^' 
course,  a  tariff  for  revenue  only  is  but  a  shght  kinds. 
restriction  on  international  trade.      However,  a  protective 
tariff  forms    a    considerably  greater    obstruction  to  com- 
merce,  while   retahatory  tariffs   and   tariffs  so   high   as  to 
become   prohibitive   prove    effectual    barriers    to  the   free 
development  of  international  trade  relations. 

The  purpose  of  restricting  commerce  through  a  protective 
tariff  is  obvious.  Suppose,  for  example,  an  American  manu- 
facturer can  produce  steel  rails  for  twenty  dollars  a  ton  and 
a  German  manufacturer  can  actually  sell  them  in  New  York 
for  ffftccn  dollars  a  ton.  Under  these  circumstances,  the 
American  manufacturer  will  either  have  to  invent  Purpose  of 
a  cheaper  process  of  manufacture  or  be  forced  ^'■'''^'^'*'"*- 
out  of  business.  The  first  he  is  unable  to  do.  Therefore, 
to  protect  him,  the  government  passes  a  tariff  act  which 
makes  it  possible  for  him  to  manufacture  steel  rails  profit- 
ably without  being  undersold  in  his  own  market.  In  order 
to  develop  home  manufactures,  cheaper  foreign  goods  are 
thus  displaced  by  more  expensive  native  products.  When- 
ever the  manufacturers  of  one  nation  are  unable  to  compete 
successfully  with  those  of  another,  artificial  Ijarriers  in  the 
form  of  tariff  laws  will  be  enacted  for  their  protection. 


246  Elements  of  Economics 

Thus,  the  principle  of  protection  comes  into  conflict  with 
the  principle  of  local  fitness  which  is  the  basis  of  the  doctrine 
of  free  trade.  Under  normal  conditions,  there  is  no  doubt 
that  free  trade  is  beneficial  to  a  community.  In  addition 
The  result  ^^  widening  the  sphere  of  friendly  commercial 
accom-  intercourse,  it  results  in  cheaper  production  and 

better  products.  However,  protection  itself  re- 
sults in  many  benefits.  Chief  among  these  is  its  creation, 
in  our  own  country,  of  a  complete  and  self-sustaining  eco- 
nomic unit.  Should  the  United  States  to-day  be  cut  off 
from  the  rest  of  the  world,  Httle  difference  would  be  felt  in 
the  amount  and  character  of  the  goods  consumed. 


TOPICS  FOR   CLASS  DISCUSSION 

1 .  Why  do  men  trade  ? 

2.  Explain  the  connection  between  individual  trading  and  com- 
munity trading. 

,3.  Is  foreign  trade  extensive  in  the  South  Pacific  cannibal  islands  ? 

4.  Why  did  foreign  trade  develop  ? 

5.  In  foreign  trade,  is  one  nation  the  loser  and  another  the  gainer  ? 

6.  May  both  nations  gain  from  international  trade  ? 

7.  What  are  the  advantages  of  international  trade  ? 

8.  If  Canada  were  annexed  to  the  United  States,  would  the  charac- 
ter of  the  trade  between  the  two  regions  be  changed  ? 

9.  Would  a  rise  in  prices  such  as  took  place  during  the  Civil  War 
increase  imports  ? 

10.  When  China  becomes  modernized,  can  the  United  States  expect 
to  export  large  quantities  of  manufactures  to  that  country?  Of 
agricultural  products  ? 

11.  How  is  a  country  like  England,  which  has  no  gold  mines, 
supplied  with  gold  ? 

12.  Would  you  expect  gold  to  have  a  lower  value  in  Alaska  than 
in  England  ?     Why  ? 

13.  Why  do  we  not  have  export  duties  in  the  United  States? 


Foreign   Trade  247 

14.  What  is  the  distinction  between  a  protective  tariff  and  a  tariff 
for  revenue  onl\'  ? 

15.  WTiat  is  protection?     Discuss   the  arguments  offered  in  its 
support. 

16.  What  is  free  trade  ?     What  are  the  arguments  in  favor  of  it  ? 

REFERENCES 

Theory  of  International  Trade  —  C.  F.  Bastable. 
Theory  of  Foreign  Exchanges  —  G.  J.  Goschen. 
Tariff  Problems  —  W.  J.  Ashley. 
Protection  or  Free  Trade  —  Henry  George. 


CHAPTER  XXXI 

Taxation 

I.  Division  of  the  taxing  power 

1 .  Federal  taxation : 
a.  Customs  duties : 

(i)  Kinds  of  duties 
(2)  Articles  taxed 
h.  Excise  taxes : 

(i)  Meaning  of  excises 

(2)  The  articles  usually  taxed 

(3)  Other  goods  taxed 
c.  Other  taxes : 

(i)  Corporation  tax 
(2)  Income  tax 

2.  State  and  local  taxation  : 

a.  The  character  of  each 

b.  The  general  property  tax : 
(i)  How  it  is  levied 

(2)  Its  defect 

II.   Principles  of  taxation 

1 .  Purpose  of  taxation  : 

a.  The  former  practice 

b.  The  present  policy 

2.  Principle  of  apportionment 

3.  Burden  of  taxation  : 

a.  Indirect  taxes : 

(i)  How  their  payment  is  shifted 

(2)  Who  bears  the  burden 

(3)  The  defect  in  the  American  system 

b.  Direct  taxes : 

(i)  Some  examples 

(2)  Status  of  the  income  tax 

c.  The  conclusion 

248 


Taxation  249 

Closely  connected  with  the  subject  of  trade  is  the  question 
of  taxation.  In  fact,  while  the  primary  purpose  of  protec- 
tive tariffs  is  the  encouragement  of  home  industry  by  the 
imposition  of  restrictions  on  international  trade,  tariff  acts 
also  serve  as  effective  instruments  of  taxation  and  are 
therefore  very  generally  employed  by  modern  governments 
to  produce  the  revenue  required  for  their  maintenance. 

Division  of  the  Taxing  Power.  —  In  the  United  States, 
tariff  or  customs  duties  are  levied  exclusively  by  the  federal 
government,  because  Congress  has  sole  power  to  regulate 
trade  with  foreign  nations.  It  will  at  once  be  seen  that  tliis 
division  of  commercial  powers  between  state  and  nation 
results  in  a  corresponding  division  of  the  power  of  taxation. 
While  the  state  is  thus  excluded  from  making  use  of  particu- 
lar forms  of  taxation,  the  taxing  power  of  the  national  gov- 
ernment is  also  restricted  in  certain  respects.  For  example, 
no  taxes  may  be  laid  on  articles  exported  from  any  state  and 
direct  taxes  must  be  laid  in  proportion  to  the  population. 

Nine  tenths  of  the  revenue  of  the  United  States  is  derived 
from  customs  duties  and  excise  taxes.     Customs  duties  are 
either   specific   or   ad  valorem   according   as   to  Federal 
whether  they  are  based  on  quantity  or  value.   (-„^^y,„^" 
In  the  United  States,  the  number  of  articles  on  duiies. 
which  such  duties  are  laid  is  very  large.     Chief  among  these 
are  wool,  sugar,  silk,  iron  and  steel,  cotton,  tobacco,  flax, 
chemicals,  glass,  leather,  earthenware,  and  jewelry.     Thus  it 
will  be  noticed  that  not  only  luxuries,  but  also  many  neces- 
saries of  life,  are  subject  to  this  kind  of  taxation.     While 
there  is  always  a  "  free  list,"  this  enumerates  such  a  small 
number  of  articles  as  to  make  it  of  insignificant  importance. 

Rut  while  the  tariff  yields  a  large  revenue,  the  income 
derived  from  excise  taxes  in  the  United  States  is  equally 


250  Elements  of  Economics 

important.  Excises  are  taxes  laid  on  articles  consumed, 
sold,  or  manufactured  within  a  country,  and  the  revenue 
they  yield  is  known  as  "internal  revenue."  The  commodi- 
ties most  usually  subject  to  this  kind  of  taxation  are  liquors 
and  tobacco.  Because  they  are  luxuries,  these  goods  are 
^    .  heavily  taxed,  and  by  reason  of  their  general  use 

Excise  taxes.       . 

yield  great  revenues.  However,  these  are  not  the 
only  goods  subject  to  an  excise  tax.  For  example,  oleo- 
margarine, filled  cheese,  mixed  flour,  and  adulterated  butter 
have  been  included  in  this  kind  of  taxation.  When,  too, 
during  times  of  great  necessity,  it  has  been  found  necessary 
to  increase  our  internal  revenue,  special  taxes  have  been  laid 
on  various  articles.  During  the  Civil  War,  nearly  all  forms 
of  luxury  were  subject  to  taxation ;  and  again,  during  the 
Spanish-American  War,  playing  cards,  patent  medicines, 
and  legal  documents  were  hkewise  taxed  and  made  to  yield 
considerable  revenue. 

While  these  are  the  usual  forms  of  taxation  that  the  United 
States  has  relied  upon  to  secure  revenue,  other  taxes,  such 
for  example,  as  the  recent  tax  laid  upon  corporations,  are 
from  time  to  time  utilized.  Such  a  tax  serves  a  double 
purpose.  It  is  not  only  a  source  of  revenue,  but,  by  reason 
of  the  publicity  entailed,  it  also  serves  as  a  helpful  means  of 
regulating  corporations.  An  income  tax  has 
also  been  tried  by  the  federal  government.  Two 
such  laws  have  been  enacted.  The  first,  passed  during  the 
Civil  War,  was  declared  constitutional ;  while  the  second, 
enacted  in  1894,  was  declared  unconstitutional  on  the  ground 
that  an  income  tax  was  a  direct  tax  and  therefore  must  be 
laid  in  proportion  to  the  population.  This  law  of  1894  laid 
a  tax  of  two  per  cent  on  all  incomes,  including  those  of  cor- 
porations as  well  as  of  individuals,  above  $4000  a  year. 


Taxation  251 

Either  through  another  reversal  of  the  Supreme  Court  or 
through  constitutional  amendment  such  a  tax  may  again 
be  employed. 

Coming  now  to  the  subject  of  state  and  local  taxation ,  we 
find  that  there  are  Ukewise  certain  well-defined  ways  in  which 
the  states  and  local  units  secure  their  revenues.  The  states 
rely  usually  upon  the  general  property  tax  and  taxes  laid 
upon  corporations,  licenses,  and  inheritances ;  while  the  local 
units  also  depend  largely  upon  the  general  prop-  state  and 
erty  tax  in  addition  to  special  Hcense  and  fran-  '^"^^^  ^®^- 
chise  taxes  as  well  as  poll  taxes.  Therefore,  the  general 
property  tax,  which  the  federal  government  does  not  em- 
ploy, is  the  main  source  of  local  revenue.  Ever}^vhere  it  is 
in  evidence.  Assessors  value  the  property;  governing 
bodies  fijc  the  tax  rates;  and  local  authorities  collect  the 
taxes.  This  general  property  tax,  although  intended  for 
both  real  estate  and  personal  property,  does  not  effectively 
reach  personal  property.  The  reason  for  this  is  obvious. 
Land  and  houses  cannot  be  hidden  from  the  eye  of  the  tax 
collector,  but  personal  property  may  be  readily  concealed. 
This  phase  of  the  tax,  therefore,  has  the  effect  of  discrimi- 
nating against  conscientious  citizens. 

Principles  of  Taxation.  —  All  systems  of  taxation,  whether 
national  or  local,  should  be  made  to  conform  to  certain  gen- 
eral principles.  In  the  first  place,  since  a  tax  is  a  compul- 
sory payment  made  by  an  individual  for  the  support  of 
government,  its  purpose  should  be  public.  Otherwise,  as 
in  the  past,  if  taxation  were  employed  for  private  purposes, 
it  would  constitute  a  form  of  robbery  and  spolia-  Purpose  of 
tion.  So  long  as  the  proceeds  of  taxation  went  t*"t'0"- 
into  the  pockets  of  kings  and  nobles  and  were  spent  by  them 
in  riotous  living,  taxation  meant  robbery.     To-day,  however, 


252  Elements  oj  Economics 

although  the  national  government  is  obliged  to  spend  large 
sums  of  money  for  purposes  of  protection  and  maintenance, 
the  state  and  local  governments  devote  their  incomes  largely 
to  the  advancement  of  education,  general  security,  and  social 
improvements.  Among  the  latter,  better  streets,  cleaner 
water,  and  more  playgrounds  are  assuming  greater  impor- 
tance. Increased  taxation  may  therefore  mean  higher  social 
welfare. 

Another  important  point  to  be  considered  in  any  system 
of  taxation  is  the  principle  according  to  which  taxes  should 
be  apportioned  throughout  the  community.  On  this  ques- 
tion there  are  two  opposing  theories.  On  the  one  hand,  it 
is  maintained  that  taxes  should  be  levied  according  to  special 
benefits  received ;  on  the  other,  it  is  held  that  they  should  be 
laid  in  proportion  to  ability  to  pay.  If  taxes  were  levied 
according  to  the  first  principle,  those  receiving  most  bene- 

Principie  ^^^  —  ^^^  P°*^^  ^^^  needy  —  would  be  taxed 
of  appor-  most  heavily.  This  would  evidently  be  unjust. 
If,  however,  taxes  were  laid  in  proportion  to 
ability  to  pay,  those  enjoying  the  comforts  of  life  —  the 
rich  and  well-to-do  —  would  contribute  largely  to  the 
support  of  government.  At  the  same  time,  the  mere  exist- 
ence of  government  would  confer  a  very  great  benefit  on 
these  wealthy  classes  and  justify  their  large  contributions 
to  public  support.  Therefore,  we  must  conclude  that  abil- 
ity to  pay,  not  benefits  received,  should  be  the  determining 
factor  in  apportioning  taxes. 

Directly  connected  with  this  subject  of  apportionment  is 
Burden  of  the  question  of  the  burden  of  taxation.  A  tax 
taxation:  j^g^y  |^g  intended  for  one  person  but  paid  by 
another.  That  is,  the  first  individual  shifts  the  payment  of 
the  tax  to  another  and,  in  this  manner,  makes  the  burden 


I 


Taxation  253 

of  taxation  fall  on  some  one  not  originally  intended.  Taxes 
which  may  be  shifted  are  usually  spoken  of  as  indirect  taxes, 
while  those  which  may  not  are  called  direct  taxes. 

Customs  duties  are  typical  of  indirect  taxes.  This  tax 
intended  for  the  foreign  manufacturer  is,  of  course,  not 
really  paid  by  him,  because  he  shifts  its  payment  to  the  im- 
porter; and  the  importer,  in  turn,  shifts  it  to  the  consumer 
in  the  form  of  higher  prices.  Meanwhile,  if  the  consumer 
decides  to  buy  the  domestic  article,  he  finds  of  indirect 
course  that  its  price  has  correspondingly  increased.  ''^•^"■• 
Therefore,  whether  he  buys  the  domestic  or  imported  article, 
the  burden  of  this  tax  falls  on  the  consumer.  If  he  does  not 
pay  it  to  the  government,  he  does  to  the  home  manufacturer. 
In  the  United  States,  since  customs  duties  are  so  generally 
levied  and  since  they  fall  so  largely  upon  commodities  in 
common  use,  Uke  sugar  and  woolen  goods,  the  burden  of 
customs  taxation  falls  chiefly  upon  the  poor.  This  is  further 
accentuated  by  the  fact  that  excise  taxes,  which  may  also 
be  shifted,  are  heavily  laid  on  tobacco  and  liquors,  which 
constitute  an  important  item  in  middle  class  consumption. 

On  the  other  hand,  direct  taxes  are  taxes  which  cannot 
readily  be  shifted.  The  best  examples  of  these  are  poll 
taxes,  taxes  on  land,  and  on  individual  income.  As  we  have 
seen,  the  Supreme  Court  once  declared  this  last-mentioned 
tax  an  indirect  and  then  later  a  direct  tax.  In  the  first  case, 
it  interpreted  the  i)hrase  "  direct  taxes  "  to  mean  Direct. 
those  taxes  that  were  considered  such  when  the  '''*""• 
Constitution  was  adopted,  viz.  poll  and  land  taxes.  In  its 
later  decision,  it  considered  a  tax  on  income  to  be  a  tax  on 
the  property  from  which  the  income  is  derived,  and  therefore 
a  direct  tax.  Since  this  tax  was  not  laid  in  proportion  to 
the  ])opulation,  the  Court  declared  it  unconstitutional. 


254  Elements  of  Economics 

Leaving  aside  the  question  of  constitutional  difficulties, 
it  seems  unfortunate  from  an  economic  standpoint  that  no 
federal  income  tax  is  at  present  permissible.  The  great 
burden  of  taxation  imposed  on  the  poor  by  means  of  duties 
and  excises  should  be  offset  by  some  form  of  direct  taxation 
The  con-  ^^  ^^^  Wealthier  classes.  An  income  tax  seems 
elusion.  the  most  simple  means  of  bringing  about  this 

more  just  apportionment.  While  the  well-to-do  classes  are 
now  subject  to  the  general  property  tax  of  the  state  and 
local  governments,  the  concealment  of  stocks  and  bonds 
and  other  personal  property  offers  frequent  opportunity 
for  escaping  just  taxation. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  What  are  the  reasons  for  the  growing  demand  for  a  reduction 
of  the  tariff  ? 

2.  Explain  the  attitude  of  the  different  sections  of  the  country 
toward  the  tariff  at  the  present  time. 

3.  What  advantages  does  a  system  of  customs  duties  offer  as  a 
means  of  raising  revenue  7 

4.  Would  customs  duties  be  a  satisfactory  source  of  revenue  for 
the  United  States  in  time  of  war  with  a  great  naval  power  ? 

5.  Make  a  list  of  the  disadvantages  of  a  system  of  customs  duties. 

6.  Who  bears  the  burden  of  a  revenue  tariff  ? 

7.  WTio  bears  the  burden  of  excise  taxes  ? 

8.  Who  bears  the  burden  of  an  income  tax  ? 

9.  Should  incomes  below  a  certain  amount  be  exempt  from  taxa- 
tion? 

10.  How  high  a  rate  shotild  you  approve  in  taxation  of  inheritances  ? 

REFERENCES 

The  Science  of  Finance  —  H.  C.  Adams. 
Essays  in  Taxation  —  E.  R.  A.  Seligman. 
Introduction  to  Economics  —  H.  R.  Seager. 
PubHc  Finance  —  C.  F.  Bastable. 


PART  V 
THE   DISTRIBUTION   OF  WEALTH 

CHAPTER   XXXII 

Prelzminary  Survey  of  Distribution 

I.  Nature  of  distribution 
r.  Meaning  of  distribution 

2.  The  shares  in  distribution  : 

a.  How  they  arise 

b.  What  they  are 

3.  Inequalities  of  income  : 
a.  Causes : 

(i)  Monopoly  of  land 

(2)  Monopoly  of  capital 

(3)  Exploitation  of  labor 

(4)  Difference  in  productive  capacity 
h.  The  consequence 

c.  The  remedy 

II.  Groups  of  distribution  theories 

1.  The  productivity  theory: 
a.  its  basis 

h.  What  it  advocates 

2.  The  monopoly  theory: 
a.  Its  basis 

h.  What  it  advocates 

c.  Why  monopoly  is  emphasized 

In  our  treatment  of  economics  thus  far,  we  have  consid- 
ered the  problems  arising  from  the  consumption,  production. 


256  Elements  of  Economics 

and  exchange  of  wealth.  The  chapters  devoted  to  a  discus- 
sion of  the  mechanism  of  exchange  have  shown  us  that  this 
phase  of  economics,  in  common  with  all  its  other  parts,  is 
intimately  connected  with  the  subject  of  individual  and  so- 
cial welfare.  There  still  remains  one  phase  of  wealth  that 
we  have  yet  to  consider,  that  is,  the  problem  of  its  distribu- 
tion. 

Nature  of  Distribution.  —  The  problem  of  distribution 
deals  with  the  principles  according  to  which  the  wealth  of 
society  is  distributed  among  its  members.  Exchange 
Meaning  deals  with  the  mechanism  whereby  goods  are 
of  dis-  transferred  from  one  person  to  another  through 

the  medium  of  money,  credit,  trade,  or  some 
similar  device.  Distribution,  on  the  other  hand,  considers 
the  question,  ''  How  much  wealth  goes  to  one  member  of 
society  and  how  much  to  another?  " 

Two  questions  naturally  suggest  themselves  to  the  stu- 
dent of  the  distribution  of  wealth.  In  the  first  place, 
"How  is  wealth  created?"  In  the  second  place,  "To 
whom  does  wealth  belong?  "  If  three  men  build  a  boat,  it 
The  shares  belongs  to  them.  If,  however,  instead  of  a 
in  distribu-    boat,  all  the  wealth  of  society  is  to  be  considered, 

it  becomes  necessary  to  inquire  in  detail  what 
factors  produced  this  wealth  in  order  to  know  who  are 
entitled  to  it  and  how  it  should  be  distributed.  The 
factors  which  produce  wealth  are  land,  labor,  and  capital. 
Therefore,  if  land,  labor,  and  capital  have  produced  the 
wealth  of  society,  land,  labor,  and  capital  must  be  entitled 
to  its  use  and  enjoyment.  This  is  the  basis  of  the  distri- 
bution of  wealth  throughout  society.  Each  factor  in  pro- 
duction is  entitled  to  a  share  in  distribution  by  reason  of 
the  part  it  has  played  in  production.     Each  share  in  dis- 


Preliminary  Survey  of  Distribution 


257 


tribution  is  then  given  a  special  name  in  accordance  with 
the  factor  it  represents,  —  land's  share  is  called  rent ; 
capital's,  interest;  and  labor's,  wages.  These  factors  in 
production  and  shares  in  distribution  may  be  represented 
in  a  simple  manner  by  the  following  diagram  : 

SHARES  IN  DISTRIBUTION 


RENT 


INTEREST 


WEALTH 


LAND 


WAG|S 


CAPITAL 


LABOR 


FACTORS  IN  PRODUCTION 

In  our  further  discussion  it  will  be  shown  that  certain 
modern  conditions  interfere  to  prevent  the  shares  in  distribu- 
tion from  corresponding  exactly  to  the  respective  parts  played 
by  the  factors  in  production ;  that  other  elements  enter 
not  only  into  production  but  also  into  distribution;  and 
that  these  shares  themselves,  as  the  diagram  might  seem 
to  indicate,  are  by  no  means  equal  in  amount. 

This  fact  of  the  inequahty  of  the  different  shares  in  distri- 
bution is  seen  in  the  inequality  of  income  of  different  classes 
of  people  throughout  society.     Of  course  rent  really  goes, 
not  to  land,  but  to  the  landlord,  and  interest  not  to  capital, 
but  to  the  capitalist,  while   wages   goes  to    the  inequaii- 
laborer.     Therefore,  if  rent  and  interest  increase  ^ome : 
rapidly  and  wages  does  not,  the  income  of  land-    The  causes. 
lords  and  capitalists  will  rise,  while  that  of  labor  may  remain 
almost  stationary.     These  inequalities  of  wealth  and  in- 
come constitute  a  very  real  factor  in  the  life  of  every  modern 
community.     Fifth  Avenue  stands  out  in  sharp  contrast 
to  the  l(jwcr  East  Side.     Compared  to  the  adversity  of  the 


258  Elements  of  Economics 

many,  the  prosperity  of  the  few  is  exceptional.  Here,  for 
example,  is  one  family  with  an  income  of  five  hundred  dol- 
lars a  week,  and  there  another,  struggling  to  maintain  itself 
on  five  hundred  dollars  a  year.  What,  then,  are  the  causes 
of  this  great  inequality  of  income?  Many  explanations 
and  suggestions  have  been  offered  to  account  for  tliis  differ- 
ence of  wealth,  but  there  is  little  harmony  of  opinion  among 
writers  as  to  its  ultimate  cause.  To-day,  however,  in  Amer- 
ica four  factors  seem  to  stand  out  as  prominent  and  striking 
causes  of  such  inequality :  (i)  monopoly  of  land,  (2)  monop- 
oly of  capital,  (3)  exploitation  of  labor,  and  (4)  difference 
in  productive  capacity. 

The  monopoly  of  land  or  natural  resources  in  the  United 
States  has  already  been  referred  to  and  its  effect  on  prices 
explained.  No  one  can  fail  to  see  the  social  importance  of 
this  monopoly  control.  Since  national  prosperity  is  directly 
dependent  on  natural  resources,  and  since  individual  wel- 
fare is  closely  related  to  social  prosperity,  every  effort  should 
be  made  to  extend  the  use  of  natural  resources  to  all  members 
of  the  community.  If,  however,  these  resources  should  be 
monopolized  or  withheld  from  use  by  a  few  individuals,  the 
great  mass  of  people  would  either  be  deprived  of  advantages 
or  forced  to  pay  exorbitant  prices  for  the  enjoyment  of  their 
products.  Through  the  monopoly  of  land,  prices  may  be  so 
controlled  as  to  deprive  the  consumer  of  a  large  part  of  his 
income. 

Monopoly  price,  depending  on  the  monopoly  of  natural 
resources,  is  thus  one  riieans  of  shifting  income  from  one 
class  to  another.  But  the  determination  of  price  does  not 
depend  entirely  upon  the  monopoly  of  natural  resources. 
Monopoly  of  capital  is  also  a  factor  in  determining  monopoly 
price  and  in"  bringing  about  great  monopoly  profits.     The 


Preliminary  Survey  of  Distribution  259 

concentration  of  great  masses  of  capital  in  the  hands  of  few- 
individuals  gives  them  a  tremendous  advantage  in  fixing 
prices,  in  creating  profits,  and  in  diverting  income  from  oth- 
ers to  themselves.  Likewise,  special  privileges  secured 
through  patents  and  copyrights  play  an  important  part  in 
creating  monopoly  profits. 

Because  of  this  monopoly  power,  some  writers  maintain 
that  the  wealth  of  one  group  in  society  often  increases  at  the 
expense  of  another.  They  take  the  view  that,  if  certain 
men  receive  more  than  they  produce,  others  receive  less 
than  they  produce.  A  monopoly  profit  is  a  profit  secured 
through  the  possession  of  some  unusually  great  power,  either 
in  the  form  of  land  resources,  or  capital  resources,  or  labor 
resources.  Setting  aside,  for  the  moment,  the  monopoly 
power  that  comes  from  exceptional  capacity  or  unusual 
training,  it  is  maintained  by  this  school  of  writers  that  the 
monopolist,  deriving  his  power  through  an  exceptional  con- 
trol of  land  or  capital,  is  reaping  where  he  has  not  sown, 
—  that  is,  securing  value  which  he  has  not  produced. 
If,  therefore,  labor  has  produced  this  value  and  is  deprived 
of  it,  the  monopolist  is  charged  with  exploiting  labor  for  his 
own  benefit.  In  this  manner,  monopoly  of  land,  monopoly 
of  capital,  and  exploitation  of  labor  constitute,  in  ^  the 
opinion  of  these  writers,  a  series  of  causes  which  explain 
many  of  the  inequalities  in  social  income. 

Opposed  to  this  explanation  of  inequalities  of  income  we 
have  the  view  of  another  school  of  writers  which  seeks  in 
labor  itself  the  cause  of  such  inequality.  According  to  this 
view,  it  is  not  the  monopolist,  nor  the  capitalist,  nor  the 
so-called  exploiter  who  is  responsible  for  differences  in  in- 
come. These  didcrenccs  are  due  primarily  to  dilTerences 
in  earning  capacity.     If  one  iikiu's  income  is  live  hundred 


26o  Elements  of  Economics 

dollars  a  year  and  another's  five  thousand  dollars  a  year,  the 
difference  is  due  to  the  fact  that  the  first  laborer  has  but 
one  tenth  the  productive  capacity  of  the  second.  Labor 
itself  —  not  land  or  capital  —  is  thus  held  responsible  for 
its  own  condition. 

Despite  any  difference  of  opinion  regarding  the  causes  of 
these  inequalities  of  income,  there  can,  however,  be  no 
doubt  of  their  existence  and  consequences.  We  have  seen 
that  a  standard  of  living  is  determined  largely  by  wages, 
and  we  now  see  that  wages  depends  upon  distribution. 
The  conse-  Therefore,  inequalities  of  income  have  a  direct 
guence.  effect  upou  Standards  of  living.    While,  to-day, 

comparatively  few  individuals  have  such  great  incomes  as  to 
permit  the  development  of  the  highest  possible  economic 
standards,  large  numbers  of  people  are  existing  on  a  standard 
of  living  so  low  that  they  are  scarcely  able  to  secure  the 
necessaries  of  fife.  As  a  consequence,  the  children  of  these 
families  are  likely  to  grow  up  to  be  inefficient  men  and 
women. 

These  low  standards  and  wages  brought  about  by  ine- 
qualities of  income  can  find  no  justification  in  the  nation's 
natural  resources  or  in  the  productive  capacity  of  the  indus- 
trial system.  To-day,  the  United  States  easily  produces 
sufficient  economic  goods  to  maintain  every  family  on  a 
basis    of    efficiency.     There    is    enough    wealth 

1  he  remedy.  ^  ° 

for  all  to  enjoy.  If,  then,  our  productive  system 
is  so  efficient,  why  does  poverty  exist  beside  riches?  Evi- 
dently the  answer  to  this  question  may  be  found  in  a  study 
of  the  present  system  of  the  distribution  of  wealth  through- 
out society.  If  we  would  seek  to  remedy  these  inequalities 
of  income,  we  must  bring  about  some  change  either  in  indi- 
vidual capacity  or  in  the  system  of  distribution  whereby 


Preliminary  Survey  of  Distribution  261 

the  different  shares  of  wealth  that  go  to  land,  labor,  and  capi- 
tal may  become  more  equal. 

Groups  of  Distribution  Theories.  —  From  this  brief 
discussion  it  may  readily  be  seen  how  vital  is  the  problem  of 
wealth  distribution.  Without  a  proper  distribution  of 
wealth,  the  attainment  of  economic  ideals,  such  as  effi- 
ciency, opportunity,  prosperity,  and  welfare,  would  be  im- 
possible. 

Unfortunately,  economists  do  not  agree  on  one  single 
theory  of  distribution.  In  fact,  opinion  has  been  so  divided 
that  many  conflicting  theories  have  been  advanced  from 
time  to  time.  In  general,  however,  theories  of  distribution 
may  at  present  be  divided  into  two  main  groups,  (i)  those 
emphasizing  productivity,  and  (2)  those  emphasizing  monop- 
oly as  the  determining  factor  in  the  problem.  While  both 
these  schools  of  writers  beheve  in  social  justice,  they  vary  in 
their  explanations  of  the  causes  of  inequalities  The  pro- 
of income.  The  productivity  school  bases  its  theory: 
theory  on  competition  and  productive  capacity,  its  basis. 
Its  followers  hold  that  certain  natural  laws  always  tend  to 
produce  given  results.  One  of  these  natural  laws,  competi- 
tion, will  result  in  a  just  system  of  distribution  provided  it 
be  left  free  to  work  itself  out.  In  the  absence  of  competi- 
tion, distributive  justice  is  obviously  impossible ;  but  were 
competition  widespread,  a  just  system  of  distribution 
founded  on  productive  capacity  would  be  inevitable. 

Proceeding  on  this  basis,  the  productivity  theorists  apply 
their  system  to  modern  society  through  the  program  of 
government  regulation.  They  admit  the  presence  of 
monopoly  but  direct  all  their  efforts  towards  its  aboHtion 
because  they  believe  that  only  through  competition  will 
justice  be  realized.     That  is,  they  advocate  strict  govern- 


262  Elements  of  Economics 

ment  regulation  of  industry.  This  theory  holds  that  the 
shares  in  distribution  are  determined  exactly  by  the  extent 
What  it  of  productivity.  That  is,  if  a  tin  dipper  costs 
advocates.  |.gj^  ccnts,  and  if  natural  resources  contributed 
two  cents  to  its  production,  under  a  strictly  competitive 
regime,  natural  resources  would  be  paid  two  cents  in  rent. 
In  the  same  way,  if  labor  contributed  four  cents,  labor  would 
receive  four  cents  as  wages.  Thus,  if  competition  can  be 
made  free,  society  will  naturally  right  itself  by  the  action 
of  this  universal  law. 

The  monopoly  theory  of  distribution,  in  distinct  contrast 
to  this  productivity  theory,  looks  upon  monopoly  as  the 
factor  of  prime  importance  and  as  the  logical  outcome  of 
present  social  development.  Social  evolution  has  reached  a 
stage  in  which  monopoly  is  inevitable.  This  school,  there- 
fore, takes  the  position  that  no  person  is  to  blame  for  mod- 
ern industrial  monopoly.  Monopoly  is  not  "  wrong." 
It  is  merely  a  product  of  modern  industrial  conditions.  In 
The  mo-  other  words,  monopoly  is  an  economic  law  of 
theory:  modern  society.     Therefore,  in  solving  the  dis- 

iis  basis.  tribution  problem,  monopoly,  not  productivity,  is 
looked  upon  as  of  primary  importance.  According  to  the 
theories  advanced  by  this  group  of  thinkers,  if  natural  re- 
sources contribute  but  one  cent  to  the  actual  production  of 
the  dipper,  nevertheless,  because  of  the  monopoly  which  the 
owner  of  the  natural  resources  possesses,  the  amount  which 
goes  to  him  may  be  three  cents,  —  one  cent  representing  the 
contribution  of  natural  resources  and  two  cents  represent- 
ing monopoly  power. 

If  this  monopoly  theory  be  true,  the  method  of  securing 
a  more  equal  distribution  of  wealth  lies  in  the  increase  of 
monopoly  power  rather  than  in  its  abolition.     This  school. 


Preliminary  Survey  of  Distribution  263 

therefore,  advocates  increasing  labor's  monopoly  power. 
Does  the  laborer  feel  that  he  is  being  unfairly  treated  b}' 
not  securing  the  full  value  of  his  work?  Or,  whatit 
does  he  think  he  is  being  exploited  by  his  em-  ^'^^''ca^". 
ployer?  If  so,  he  has  but  one  remedy.  That  is,  he  must 
secure  through  organization,  education,  or  legislation  some 
special  monopoly  which  will  enable  him  to  make  headway 
against  the  monopoly  enjoyed  by  his  employer. 

In  contrasting  these  two  theories,  it  may  be  said  that  the 
productivity  theory  of  distribution  is  really  a  prophecy  of 
what  might  be  under  ideal  conditions  of  competition,  while 
the  monopoly  theory  is  an  analysis  of  things  as  they  really 
are.  For  this  reason  the  monopoly  theory  furnishes  a  much 
more  adequate  basis  for  a  discussion  of  modern  ^>  ^^ 
conditions  than  the  productivity  theory.  While,  nopoiyisem- 
therefore,  in  the  following  chapters,  the  produc-  "^"^^  ' 
tivity  theory  of  distribution  mil  be  kept  in  mind,  chief 
emphasis  will  be  laid  upon  the  monopoly  principle  when- 
ever it  appears  to  be  the  determining  factor  in  distribu- 
tion. Throughout  the  entire  discussion  of  the  principles  of 
distribution,  it  will  be  the  aim,  however,  to  present  as 
nearly  as  possible  one  consistent  theory  of  distribution  rather 
than  a  disjointed  resume  of  conflicting  theories. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  In  Economics  why  should  the  emphasis  be  laid  to-day  on  the 
subject  of  distribution  rather  than  on  that  of  production  ? 

2.  If  a  man   produces  one  commodity,  how  does  he  satisfy  his 
wants  ?     Upon  what  will  his  ability  to  satisfy  his  wants  depend  ? 

3.  What  idea  lies  back  of  the  expression  "distribution  of  wealth"  ? 

4.  What  are  the  diflferent  methods  by  which  people  obtain  their 
incomes? 


264  Elements  of  Economics 

5.  How  can  a  chair  be  said  to  be  distributed  among  the  land,  labor, 
and  capital  creating  it  ? 

6.  What   is   the   relation  of   private   property   to   distribution? 
How  is  this  illustrated  in  the  case  of  land  ?     In  the  case  of  capital  ? 

7.  Was  there  any  distributive  problem  when  each  household  was 
economically  self-sufficient  ? 

8.  WTien  we  speak  of  the  economic  inequalities  of  to-day,  do  we 
mean  inequalities  of  property  or  of  income  ? 

9.  What  is  the  relation  between  political  democracy  and  industrial 
democracy  ? 

10.  If  a  man  cooperates  with  others  in  making  a  commodity,  what 
determines  the  extent  of  the  share  he  can  secure  ? 

11.  Should  a  man  be  paid  according  to  his  ability  or  according  to 
his  needs  ? 

REFERENXES 

The  Distribution  of  Wealth  —  J.  B.  Clark. 
The  Distribution  of  Wealth  —  J.  R.  Commons. 
Progress  and  Poverty  —  Henry  George. 
Introduction  to  Economics  —  H.  R.  Seagcr. 
The  Theory  of  Prosperity  —  S.  N.  Patten. 


CHAPTER  XXXIII 
The  Theory  of  Rent 

I.  Nature  of  rent 

1 .  What  rent  means 

2.  How  rent  is  paid 

3.  How  rent  arises  : 

a.  From  differences  of  fertility 
h.  From  differences  of  location 

II.  The  grades  of  land 

1 .  The  usual  grades 

2.  The  "  no-rent  "  land 

3.  How  rent  varies  : 

a.  Between  grades 

b.  Within  a  grade : 
(i)  Marginal  rent 

(2)  Differential  rent 

(3)  An  illustration 

c.  The  general  principle 

d.  Explanation  of  diagram 

e.  Other  applications  of  the  law 

4.  The  conclusion 

Nature  of  Rent.  —  The  most  generally  accepted  and  most 
firmly  established  theory  of  distribution  is  that  relating  to 
rent.     Rent  is  the  return  on  natural  resources  and,  in  eco- 
nomics,   means    the    amount    of    wealth    that  what 
"land"    receives   for   its   part    in    production,   "rent" 
Therefore,  from  an  economic  standj)oint,  "  rent  "      ^"^' 
means  something  quite  different  from  the  sense  in  which  the 
word  is  used  by  the  real  estate  broker.     The  latter  uses  the 

265 


266  Elements  of  Economics 

term  to  represent  not  only  the  return  on  land  —  the  lot  — 
but  also  the  return  on  capital  —  the  house.  Real  estate 
rent,  therefore,  includes  both  rent  and  interest;  but  eco- 
nomic rent  signifies  simply  the  return  on  land.  This  dis- 
tinction is  fundamental  and  must  always  be  borne  in 
mind. 

It  is  equally  important  to  remember  that  rent  exists  re- 
gardless of  the  manner  in  which  it  is  paid  or  of  the  person  to 
whom  it  is  paid.  For  example,  land  may  receive  its  share  of 
rent  in  the  form  of  so  many  extra  bushels  of  wheat  as  well  as 
in  the  form  of  money  representing  these  bushels  of  wheat. 
How  rent  Likewise,  this  rent  is  paid  to  land  regardless  of 
is  paid.  whether  the  land  is  used  by  the  owner  or  by  the 

tenant.  Since  land  cannot  take  this  rent  itself,  some  one 
-must  take  it  for  the  land.  Therefore  the  landlord  receives 
the  rent.  If  he  uses  the  land  himself,  he  receives  it  in  the 
form  of  extra  crops ;  if  some  one  else  uses  it,  he  takes  it  in 
the  form  of  money.  When  the  owner  and  the  user  are  two 
different  persons,  it  may  easily  be  seen  that  the  payment  of 
rent  becomes  more  marked  and  more  socially  significant. 

Since  rent  exists  so  generally  and  since  it  is  paid  so  uni- 
versally, one  naturally  asks,  "  How  does  rent  arise  and  what 
reason  is  there  for  its  payment?  "  To  this  question  there  is 
How  rent  a  clear  and  definite  answer.  Rent  arises  because 
arises:  q£  differences  in  the  productive  capacity  of  va- 

rious lands.  This  difference  of  productivity  may  be  due  to 
a  difference  in  the  fertility  of  the  soil  or  to  a  difference  in  the 
location  of  the  land. 

First  of  all,  picture  in  your  mind  two  separate  tracts  of 
land,  each  an  acre  in  size.  Every  spring  the  two  farmers 
owning  these  tracts  go  out  to  plant  their  grain.  They  may 
use  the  same  quality  of  fertilizer,  the  same  kind  of  grain, 


The  Theory  of  Rent  267 

and  the  same  kind  of  plow,  and  have  the  same  efficiency 
in  their  labor  force.  In  the  fall,  one  farmer  reaps  twenty 
bushels ;  the  other,  fifteen.  To  what  can  we  at-  p^^^ 
tribute  this  difference  in  yield  of  five  bushels  per  differences 
acre  ?  In  aU  production  there  are  three  factors, —  "  ^''^^^■ 
land,  labor,  and  capital.  On  these  two  acres  the  capital  and 
labor  were,  by  assumption,  respectively  identical.  This 
being  the  case,  there  remains  but  the  third  factor  to  which 
we  can  attribute  this  extra  growth  of  five  bushels.  That  is 
land.  The  extra  return  of  five  bushels  is  the  income  which 
we  can  attribute  to  the  better  acre  because  of  its  superiority 
over  the  poorer  one.  Such  an  increase  is  termed  "  rent." 
Thus,  economic  rent  arises  because  "  land  "  aids  man  une- 
qually in  production.  In  one  place  it  yields  fifteen  bushels, 
in  another  twenty.  This  difference  in  the  yield  constitutes 
the  rent. 

Again,  let  us  picture  to  ourselves  two  retail  stores  of  equal 
attractiveness  so  far  as  the  building  and  goods  are  concerned, 
and  each  with  equally  efficient  management.  One  is  lo- 
cated on  the  outskirts  or  edge  of  the  business  district  and 
the  other  is  near  the  center  of  one  of  the  busiest  thorough- 
fares. At  the  end  of  the  year,  the  net  profit  of  the  one 
store  may  be  one  thousand  dollars,  while  the  net  p^^^^ 
profit  of  the  other  may  be  two  thousand  five  differences 
hundred  dollars.  To  what,  then,  must  we  attrib- 
ute this  difference  in  earning  power  amounting  to  fifteen 
hundred  dollars  per  annum  ?  The  labor  is  equally  efficient ; 
the  physical  equipment  of  the  stores  is  similar.  The 
difference,  then,  can  only  be  attributed  to  the  third  factor 
in  production,  namely,  land.  The  income  which  we  must 
attribute  to  this  second  store  because  of  its  superiority  in 
location   over   the  poorer  we  also  call  economic  rent.     In 


268  Elements  of  Economics 

the  first  illustration,  the  superiority  in  fertility  gives  rise 
to  rent,  while  in  the  second,  the  superiority  in  location  has  a 
like  effect.  Superiority  may,  of  course,  be  the  product  of  both 
fertihty  and  of  location,  as  in  trucking  land  near  great  cities. 

Rent,  therefore,  arises  from  differences  in  the  value  of 
land,  and  the  rent  of  any  piece  of  land  is  the  difference  be- 
tween its  yield  or  value  and  that  of  a  particular  piece  of  land 
taken  as  a  basis  of  comparison. 

The  Grades  of  Land.  —  The  center  of  every  city  is  de- 
voted to  the  purposes  of  business.  Outside  this  district 
we  find,  roughly  speaking,  the  circular  belt  of  the  residen- 
tial district,  which,  though  it  has  not  quite  the  high  social 
The  usual  value  of  the  business  section,  still  plays  an  im- 
grades.  portant  part  in  the  use  that  man  makes  of  land. 

Then  beyond  the  confines  of  the  city  is  the  land  devoted  to 
truck  farming ;  still  farther  out  lie  lands  devoted  to  general 
farming  and  to  grazing. 

There  may  still  be  land  lying  beyond  the  grazing  land 
which  is  least  desirable  for  any  of  the  uses  to  which  man 
"  No-rent "  ^^^  P^^  land,  but  which  may  serve  to  catch  the 
land.  overflow   of   population,   or    may    be    used    by 

the  less  fortunate  members  of  society  who  are  willing  to 
go  on  this  poor  outlying  land  and  work  there  for  a  bare 
Kving.  This  last  type  of  land  has  earned  the  name  in  eco- 
nomics of  "  no-rent  "  land,  —  a  term  which  implies  that  a 
man  working  on  such  land  will  merely  get  enough  from  his 
labor  to  allow  himself  his  daily  wage  and  to  pay  for  the  few 
simple  tools  and  seed  that  he  may  need  in  cultivating  it. 
Its  fertility  is  so  low  that,  when  a  definite  return  from  the 
land  is  set  aside  to  pay  the  wages  of  labor  and  the  interest 
on  capital,  there  is  nothing  left  for  rent.  Hence  the  ex- 
pression "  no-rent  "  land. 


The  Theory  of  Rent  269 

Broadly  speaking,  that  class  of  land  which  has  the  high- 
est social  value  will  yield  the  largest  amount  of  rent,  and,  of 
each  class,  that  land  which  is  superior  will  }deld  the  higher 
rent.  Accordingly,  all  land  used  for  busi-  Rent  varies: 
ness  purposes  yields  a  greater  income  than  land  Between 
used  for  residential  purposes.  This  latter  in  ^'"'^  "' 
turn  yields  more  than  land  used  for  trucking,  while  truck- 
ing land  yields  more  than  land  used  for  farming.  Again, 
farming  land  is  more  valuable  than  land  used  for  grazing, 
which,  in  its  turn,  brings  in  a  higher  return  than  "  no-rent  " 
land. 

It  is  apparent,  however,  that  though  this  general  scheme 
of  gradation  of  the  size  of  rents  holds  good,  there  are  many 
variations  in  rent,  and  no  two  pieces  of  land  in  the  same  belt 
pay  the  same  amount  of  economic  rent.  Hence,  we  speak 
of  the  poorest  land  of  each  belt  or  class  —  the  marginal  land 
—  as  receiving  a  marginal  rent.  If  we  take  this  poorest  land 
as  our  basis,  better  land  in  the  same  class  must  wuhin  a 
pay  a  higher  rate  due  to  its  superiority.  This  ^'''^'^'^■ 
additional  rate  is  called  the  differential  rent,  so  that  in  theory 
all  land  which  is  better,  to  however  small  a  degree,  than  the 
poorest  land  pays  a  rent  composed  of  these  two  elements,  — 
a  sum  equal  to  the  amount  paid  for  the  poorest  land  of  its 
class,  called  marginal  rent,  and  an  additional  sum  proportion- 
ate to  its  superiority  over  that  land,  called  differential  rent. 
The  two  together  equal  the  economic  rent. 

To  illustrate,  one  can  imagine  a  piece  of  land  just  on  the 
margin  of  the  belt  between  general  farming  and  trucking. 
It  is  the  poorest  land  used  for  truck  farming  and  yields  a 
rent  of  twenty-five  dollars  an  acre.  Half  a  mile  nearer  the 
city  there  may  be  a  second  farm  which,  because  of  its  su- 
periority, will  have  to  pay  an  additional  sum  of  ten  dollars, 


270  Elements  of  Economics 

making  its  full  rent  the  sum  of  the  marginal  and  differential 
rent,  or  thirty-five  dollars.  Still  farther  in  toward  the  city 
we  can  conceive  of  the  very  best  land  used  for  this  purpose 
lying  adjacent  to  the  suburban  district.  This  farm,  being 
near  to  the  city  markets,  will  have  to  pay  an  even  greater 
differential  rent,  perhaps  fifteen  dollars,  making  in  all  a 
total  rent  of  forty  dollars. 

If,  now,  we  go  even  farther  toward  the  city,  we  immediately 
pass  into  the  next  belt  in  our  illustration,  the  residential. 
The  poorest  land  used  for  this  purpose  gives  us  the  new  mar- 
ginal rent  for  that  belt.  It  is  obvious,  however,  that  the 
The  general  amount  paid  for  the  poorest  or  marginal  land 
principle.  in  this  belt  must  be  a  httle  higher  than  that  paid 
for  the  best  land  of  the  next  lower  or  trucking  belt. 
If  this  were  not  so,  the  land  would  be  put  to  truck 
farming  again,  because  it  would  yield  by  that  method  a 
larger  return.  As  a  result,  we  have  this  general  principle 
running  throughout  all  rents,  the  rent  of  the  marginal  land 
of  the  next  higher  belt  is  always  a  little  greater  than  the 
rent  of  the  marginal  land  of  the  next  lower  belt  plus  its 
greatest  differential  rent. 

This  entire  theory  of  rent  is  usually  illustrated  by  the 
diagram  on  page  271. 

The  horizontal  base  represents,  of  course,  the  lands  them- 
selves, while  the  vertical  lines  show  their  var}dng  produc- 
tivity. From  this  illustration  we  are  enabled  to  see,  not 
only  the  varying  values  of  the  different  classes  of  lands,  but 
r,  ,,  also  the  varving  values  of  different  lands  within 

Explana-  -       ° 

Hon  of  the  same  class.     For  example,  at  one  end  of  the 

diagram.  horizontal  base  we  have  land  A,  the  most  pro- 
ductive land  in  the  most  valuable  grade,  with  a  productivity 
represented  by  AO,  of  which  PO  is  rent.     At  the  other  end 


The  Theory  of  Rent 


271 


we  have  land  F,  the  least  productive  land  in  the  lowest  rent- 
paying  belt,  with  a  productivity  represented  by  FJ,  of 
which  //  is  rent.  This  land  F  is  the  marginal  land  of  the 
lowest  rent-pa^dng  class  and  its  rent  (//)  is  marginal  rent. 
A  httle  farther  up  in  this  grazing  land,  however,  we  find  that 
land  M  has  a  productivity  of  ML  and  that,  consequently 
it  has  a  differential  rent  of  KL  above  the  marginal  rent  of  F. 


RENT         ^ 

>, 

"^ 

p^L 

J 

N 

1 

BUSINESS 

RESIDENCE 

TRUCKING 

FARMING 

GiRAZING 

"NO-RENT 

UNO 

UND 

UND 

LAND 

ILAND 

UND 

A 

B                      C 

D 

E     M 

F 

Altogether  this  land  M  has  an  economic  rent  of  iVL,  which 
represents  the  sum  of  both  the  marginal  and  differential 
rent. 

So  far  we  have  applied  the  law  of  rent  to  only  one  kind  of 
"  land,"  namely,  the  fields.  It  is,  however,  applicable  to 
other  forms  of  "  land,"  such  as  mines  and  water  power.  For 
example,  marginal  water  power  would  be  the  poorest  kind  of 
water  power  that  could  be  profitably  used  for  a  certain  pur- 
pose, as  the  running  of  a  sawmill.  A  larger  and  stronger 
stream,  capable  of  being  used  for  the  .same  purpose,  would 


272  Elements  oj  Economics 

yield  a  greater  return  of  sawed  lumber.  This  additional 
income  would  represent  the  differential  rent.  Were  there 
Other  ap-  ^  sourcc  of  watcr  power  so  strong  that  it 
plications  of  would  just  pay  for  the  machinery  used  in  har- 
nessing it  and  the  labor  needed  in  operating  it, 
it  would  correspond  to  "  no-rent  "  land  and  might  well  be 
called  "  no-rent  "  water  power.  Likewise,  we  can  apply  the 
same  fundamental  principle  of  economic  rent  to  mines  and 
other  gifts  of  nature. 

According  to  these  principles,  land  takes  one  great  portion 
of  the  world's  wealth  in  the  form  of  rent.  In  any  advanced 
civilization  the  share  of  distribution  that  goes  to  land  in  the 
The  con-  form  of  rent  is  always  increasing  because  the 
elusion.  value  of  land  is  always  rising.  In  young  and 
newly  settled  countries,  where  natural  resources  are  abun- 
dant and  unappropriated,  the  amount  of  wealth  that  goes 
to  land  is  correspondingly  small.  However,  as  population 
increases  and  resources  are  utiHzed,  the  landlord  class  must 
develop  and  appropriate  a  larger  and  larger  share  of  wealth. 
In  the  United  States,  should  the  monopoly  of  natural  re- 
sources go  on  unchecked,  a  great  mass  of  wealth  could  not 
help  but  be  diverted  to  the  land-owning  classes. 


TOPICS  FOR   CLASS  DISCUSSION 

1 .  With  whose  name  is  the  theory  of  rent  most  closely  associated  ? 

2.  Give  local  examples  of  a  general  rise  of  rent;  the  cause.  Of 
a  general  fall  of  rent ;  the  cause. 

3.  What  is  meant  by  the  "law  of  diminishing  returns"  when 
applied  to  land  ? 

4.  Do  the  governments  of  other  countries  own  land  ?  Would  it 
have  been  better  for  the  United  States  to  retain  the  ownership  of  its 
land  instead  of  giving  it  away  ? 


The  Theory  of  Rent  273 

5.  On  what  is  rent  based  ?  Why  would  rent  disappear  if  land  were 
unlimited  in  amount  and  aU  of  equal  quality  ? 

6.  What  is  the  effect  upon  rent  of  improvements  in  the  field  of 
production  ?  Of  consumption  ?  Of  transportation  ?  What  are  the 
forces  in  society  that  tend  to  raise  agricultural  rents  ?     Urban  rents  ? 

7.  What  would  be  the  effect  upon  rent  if  new  land  were  discovered  ? 
If  a  railroad  opened  up  a  new  country  ? 

8.  Is  the  "rent"  of  a  down-town  New  York,  office  rent  in  the 
economic  sense  of  the  term  ? 

9.  Are  tenants  very  likely  to  make  permanent  improvements 
upon  rented  land  ?     Why  ? 

10.  What  is  the  difference  between  economic  rent  and  commercial 
or  contract  rent  ? 

11.  Can  you  give  examples  of  a  rise  of  commercial  rent?      Of  a 
decrease  ?     State  the  causes  in  each  case. 

12.  Is  the  income  yielded  by  permanent  improvements  on  land 
rent,  interest,  or  profits  ? 

13.  How  has  the  advent  of  trolley  cars  and  automobiles  affected 
rent? 

14.  Do  ''High  rents  cause  high  agricultural  prices"  or  do  "High 
agricultural  prices  cause  high  rents"  ? 

15.  What  case  of  unearned  increment  in  land  values  can  you  cite  ? 

REFERENCES 

The  Distribution  of  Wealth  —  J.  B.  Clark. 
Land  and  its  Rent  —  F.  A.  Walker. 
Progress  and  Poverty  —  Henry  George. 
Principles  of  Political  Economy  —  David  Ricardo. 
Introduction  to  Economics  —  H.  R.  Seager. 


CHAPTER  XXXIV 

The  Theory  of  Interest 

I.  Nature  of  interest 

1.  Its  meaning 

2.  Some  examples 

3.  Why  necessary : 

a.  From  the  standpoint  of  saving 

b.  From  the  standpoint  of  efficiency 

II.  What  determines  rate  of  interest 

1.  Man's  valuation  of  the  future : 
a.  Individual  valuation 

h.  Social  valuation 

c.  Why  the  rate  is  low  or  high 

2.  Other  considerations : 

a.  Concerning  supply  of  capital 
h.  Concerning  element  of  risk 

III.  Source  of  the  interest  fund 

1 .  The  popular  view 

2.  The  scientific  view 

3.  The  summary 

Nature  of  Interest.  —  Capital  is  also  a  factor  in  produc- 
tion, and  the  share  assigned  to  it  in  the  general  distribution 
of  wealth  is  called  interest.  In  other  words,  interest  is  the 
Meaning  return  on  capital  and  represents  capital's  reward 
and  for  engaging  in   production.     If  an  individual 

permits  his  wealth  to  be  used  as  capital,  instead 
of  consuming  it  unproductively,  he  will  receive  this  interest 
for  its  use.     Returns  on  investments,   therefore,  whether 

274 


The  Theory  of  Lnterest  275 

received  as  interest  on  deposits,  or  interest  on  mortgages,  or 
dividends  on  stock,  are  all  forms  of  interest.  Therefore, 
interest  is  the  sum  paid  for  the  use  of  capital. 

The  first  question  that  naturally  arises  in  considering  in- 
terest is  this:  Why  should  it  be  necessary  to  pay  interest 
for  the  use  of  capital?  Why  should  not  capital  be  univer- 
sally employed  without  receiving  any  interest  ?  why  neces- 
The  answer  to  this  question  may  be  found  in  a  ^^^''^'' 
characteristic  of  human  nature.  Interest  is  necessary  be- 
cause man  undervalues  the  future  and,  consequently,  capital 
would  soon  disappear  were  no  interest  paid  for  its  use. 

This  payment  of  interest  for  the  use  of  capital  is  necessary 
no  matter  whether  we  regard  saving  or  efficiency  as  the  prime 
factor  in  creating  capital.  When  we  view  capital  from  the 
standpoint  of  saving,  the  necessity  for  the  payment  of  in- 
terest is  quite  apparent.  Because  man  undervalues  the 
future  he  overvalues  the  present.  The  present  enjoyment 
of  one  thousand  dollars  means  much  more  to  an  ^^^,^  ^^^ 
indi\ddual  than  a  contemplation  of  its  enjoyment  standpoint 
a  year  from  now.  This  is  true  because  the  fu- 
ture is  so  uncertain.  Dishonesty,  accident,  fire,  or  death 
may  intervene  to  prevent  the  actual  enjoyment  of  this 
wealth  in  the  future.  Therefore,  man  prefers  to  consume 
and  enjoy  it  now.  But  should  an  individual  resist  this 
tendency  and  thus  abstain  from  present  consumption,  he 
would  be  obliged,  while  saving,  to  make  sacrifices.  As  an 
inducement,  therefore,  for  him  to  save  and  as  a  reward  for 
these  sacrifices,  he  is  offered  more  future  value  for  his 
present  wealth.  Instead  of  a  thousand  dollars  to-day,  he 
receives  a  thousand  and  fifty  dollars  next  year.  This 
difference  of  fifty  dollars  offsets  his  undervaluation  of 
the  future  and  is  a  sufficient  inducement  for  him  to  save  and 


276  Elements  of  Economics 

create  capital.  If  such  a  premium  in  the  form  of  interest 
were  not  offered,  few  would  make  present  sacrifices,  wealth 
would  be  immediately  consumed,  and  Uttle  capital  would  be 
created. 

If  we  regard  capital  from  the  standpoint  of  efficiency,  we 
find  that  the  payment  of  interest  is  still  necessary.  When 
we  regard  capital  as  resulting  from  increased  efficiency, 
rather  than  mere  saving,  interest  must  be  paid,  not  as  a 
reward  for  sacrifices,  but  as  a  means  of  preserving  capital. 
From  the  For  example,  the  milHonaire's  capital  must  be 
Ifeffi-"^''^  paid  interest  in  order  that  it  may  be  preserved. 
ciency.  Mau's  Undervaluation  of  the  future  still  exists  ; 

and,  should  he  not  be  offered  a  higher  future  value  in  order 
to  offset  this  discount  of  the  future,  he  would  squander  his 
wealth  in  present  consumption.  The  spendthrift  dissipates 
the  fortune  of  his  ancestors,  and  young  men  with  large  for- 
tunes frequently  enjoy  the  reputation  of  being  "  good  spend- 
ers." While  in  these  cases  it  would  be  an  exaggeration  to 
speak  of  interest  as  paid  for  rewarding  sacrifices,  it  is  equally 
evident  that  it  must  be  paid  for  preserving  capital.  Should 
interest  not  be  paid,  the  great  accumulations  of  capital  we 
now  have  would  eventually  be  destroyed.  Therefore, 
whether  we  regard  capital  as  resulting  from  saving  or  from 
efficiency,  the  necessity  for  the  payment  of  interest  still 
exists. 

Rate  of  Interest.  —  The  next  question  that  naturally 
arises  is :  What  determines  the  rate  of  interest  ?  From 
the  previous  discussion,  it  may  readily  be  seen  that  this 
must  likewise  depend  upon  man's  valuation  of  the  future. 
Of  course  there  is  an  individual  and  a  social  valuation.  It 
need  hardly  be  said  that  this  latter  is  the  determining  factor 
in  fixing  the  market  rate  of  interest.    If  one  individual  values 


The  Theory  of  Interest  277 

the  future  highly,  his  individual  rate  of  interest  would  be 
low.  He  would  not  need  much  future  promise  to  induce 
him  to  invest  his  wealth  in  a  productive  enterprise.  Man's 
If,  however,  the  community's  valuation  should  be  valuation  of 
low,  the  market  rate  of  interest  would  be  high. 
To  ofifset  this  low  regard  for  the  future,  a  great  premium  would 
have  to  be  offered  in  order  to  induce  the  community  to  re- 
frain from  present  consumption.  Under  these  circumstances, 
a  particular  individual,  having  a  high  valuation  of  the 
future,  would  profit  by  the  higher  market  rate  of  a  commu- 
nity with  a  low  valuation.  In  any  given  community,  how- 
ever, the  market  rate  of  interest  will  be  low  or  high  accord- 
ing as  to  whether  men  in  general  put  a  high  or  low  estimate 
on  future  values.  In  older  and  more  civilized  countries, 
because  man  values  the  future  highly,  the  rate  of  interest 
is  lower  than  in  younger  and  less  civiUzed  countries  where 
the  future  is  greatly  discounted. 

It  is  Hkewise  apparent  that  when  the  community  as  a 
whole  places  a  high  valuation  on  the  future,  many  people 
will  abstain  from  present  consumption  and  devote  a  large 
proportion-  of  their  wealth  to  productive  purposes.  This 
will  cause  the  supply  of  capital  to  be  plentiful,  other  con- 
while  the  rate  of  interest  will  be  low.  On  the  ..  ^^,  ,' 
other  hand,  when  people  place  a  low  estimate  on  demand. 
the  future  they  will  consume  freely  in  the  present  and  so 
reduce  the  amount  of  wealth  devoted  to  productive  enter- 
prise. This  situation  will  cause  capital  to  become  scarce, 
while  at  the  same  time  the  rate  of  interest  will  be  high. 
Thus  there  develops  a  certain  relation  between  the  supply  of 
capital  and  the  rate  of  interest.  When  the  supply  of  capital 
is  great  as  compared  with  the  demand  for  it,  the  rate  of 
interest  will  be  low ;  and,  conversely,  when  the  demand  for 


278  Elements  of  Economics 

capital  is  great  as  compared  with  its  supply,  the  rate  of 
interest  will  be  high. 

Again,  the  element  of  risk  is  frequently  spoken  of  in 
connection  with  interest.  For  example,  it  is  often  said 
Element  of  that  a  high  risk  means  a  high  rate  of  interest,  and 
'■"*•  low  risk  a  low  rate  of  interest.     This,  however,  is 

but  another  phase  of  man's  valuation  of  the  future.  If  an 
individual  believes  that  the  use  to  which  his  capital  is  put 
is  accompanied  by  great  risk,  that  is,  if  its  future  seems 
uncertain  to  him,  he  will  demand  a  high  rate  of  interest. 
The  value  of  this  wealth  in  the  future  looks  so  sHght  that  a 
high  rate  of  interest  in  the  present  is  demanded.  Gener- 
ally speaking,  however,  the  element  of  risk,  to-day,  is  largely 
eHminated  in  the  reckoning  of  pure  interest.  When,  for 
example,  money  is  deposited  in  a  savings  bank,  there 
is  practically  no  risk  whatever  involved  in  its  invest- 
ment. 

Source  of  the  Interest  Fund.  —  There  remains  yet  to  be 
examined  the  source  of  the  interest  fund.  Whence  comes 
the  fund  from  which  interest  is  paid?  We  have  just  seen 
why  it  is  necessary  to  pay  interest  and  the  factors  involved 
in  determining  the  rate  of  interest.  But  how  does  society 
secure  the  means  with  which  to  pay  this  sum 
lar^vfew."  necessary  for  the  use  of  capital?  Does  capital 
get  it  by  robbing  labor?  If  so,  labor  is  exploited 
by  capital,  and  that  which  should  go  to  the  laborer  in  the 
form  of  wages  the  capitahst  appropriates  as  interest.  This 
view  is  popular  with  the  laboring  class.  They  are  very 
willing  to  believe  that  the  payment  of  interest  deprives  them 
of  their  full  wages.  Sometimes,  too,  there  is  httle  doubt 
but  that  this  actually  occurs.  When  large  dividends  are 
paid  on  "  watered  "   stock  and  when,   through  monopoly, 


The  Theory  of  Interest  279 

an  unfair  advantage  is  taken  of  labor,  there  is  every  likeli- 
hood that  interest  is  paid  at  the  expense  of  wages. 

As  opposed  to  this  popular  behef,  we  have  the  scientific 
view  that  capital  creates  its  own  fund  from  which  interest  is 
paid  just  as  labor  produces  the  wealth  from  which  wages  is 
paid.  Capital,  to-day,  plays  as  great  and  powerful  a  part 
in  the  productive  process  as  the  other  requisites  of  produc- 
tion. Interest,  then,  may  be  paid  without  any  infringement 
on  the  rights  of  labor  from  the  extra  fund  of  wealth  that 
capital  has  created.  If  a  merchant,  for  example,  The  scien- 
by  making  his  store  more  attractive,  that  is,  by  ^'^  '"^^• 
adding  to  its  capital  and  appointments,  increases  his  busi- 
ness through  the  efficienc}-  of  capital,  the  extra  return  thus 
resulting  furnishes  the  fund  from  which  interest  is  paid. 
Thus,  through  increased  output  brought  about  by  increased 
capital,  interest  is  legitimately  provided. 

This  statement  of  the  theory  of  interest  brings  forward  its 
essential  features.  In  the  first  place,  the  payment  of  inter- 
est for  the  use  of  capital  is  necessary,  regardless  of  The 
whether  we  consider  saving  or  efficiency  as  the  summary, 
factor  of  prime  importance  in  the  development  of  capital. 
In  the  next  place,  the  market  rate  of  interest  in  any  given 
community  depends  upon  the  social  valuation  of  the  future. 
Finally,  the  fund  from  which  interest  is  paid  is  provided 
through  the  productive  power  of  capital  itself.  Capital  is 
thus  entitled  to  its  normal  reward  as  much  as  is  land  or 
labor. 


28o  Elements  of  Economics 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  is  interest? 

2.  State  in  summary  form  the  theory  of  interest. 

3.  Show  in  detail  the  services  rendered  to  production  by  capital. 

4.  Can  any  part  of  the  earnings  of  a  bootblack  be  called  interest  ? 

5.  When  a  company  declares  an  unearned  dividend,  is  the  stock- 
holder getting  interest  ? 

6.  Can  law  fix  the  rate  of  interest  at  any  desired  point  ?     Why  ? 

7.  Why  does  the  rate  of  interest  vary  at  the  same  time  in  different 
sections  of  the  country  ?     In  different  businesses  ? 

8.  The  savings  of  the  American  people  are  nearly  a  billion  dollars 
a  year.     What  and  where  are  they  ? 

9.  Is  interest  different  from  usury  ?     If  so,  what  is  the  difference  ? 

10.  Why  has  the  rate  of  return  on  investments  often  been  ten  per 
cent  in  the  West,  seven  per  cent  in  the  Central  states,  five  per  cent 
in  New  York,  and  four  per  cent  in  Germany  ? 

11.  It  is  said  that  interest  is  paid  for  capital,  not  for  money.  Is  this 
true? 

12.  What  is  the  effect  on  the  rate  of  interest  of  a  rising  standard  of 
living  ? 

REFERENCES 

The  Distribution  of  Wealth  —  T.  N.  Carver. 
Capital  and  Interest  —  E.  von  Bohm-Bawerk. 
The  Nature  and  Necessity  of  Interest  —  G.  Cassell. 
Principles  of  Economics  —  E.  R.  A.  Seligman. 
Introduction  to  Economics  —  H.  R.  Seager. 
Principles  of  Political  Economy — J.  S.  Mill. 


CHAPTER  XXXV 
The  Theory  of  Profits 

I.  Character  of  profits 

1.  Meaning  of  profits: 

a.  The  ordinary  meaning 

b.  The  economic  meaning 

2.  Nature  of  managing  ability: 

a.  Meaning  of  "entrepreneur" 

b.  Requisites  of  managing  ability 

3.  Nature  of  profits: 

a.  Relation  between  profits  and  wages 

b.  Why  the  special  term  is  used 

c.  The  diagram 

IL  Law  of  profits 

1.  Grades  of  entrepreneurs: 

a.  Those  of  phenomenal  power 

b.  Those  of  unusual  ability 

c.  Those  of  ordinary  capacity 

d.  Those  of  marginal  ability 

2.  Degrees  of  profits : 

a.  How  they  are  measured 

b.  An  example  from  the  diagram 

c.  What  "  no-profit  "  class  receives 

d.  The  law  summarized 

3.  The  conclusions : 

a.  Importance  of  the  entrepreneur 

b.  Effect  of  monopoly  power 

Character  of  Profits.  —  We  now  come  to  an  analysis  of 
one  of  the  shares  in  distribution  that,  up  to  this  point,  in 

281 


282  Elements  of  Economics 

order  to  avoid  confusion  of  thought,  we  have  purposely  re- 
frained from  discussing.  This  share  is  known  as  "  profits." 
Like  rent,  the  word  "profits,"  as  used  in  economics,  has  a 
meaning  distinct  from  that  usually  attributed  to  it.  In 
Meaning  Ordinary  language  the  term  "profits  "  is  used  to 
of  profits.  designate  the  total  gains  of  a  man  in  business, 
regardless  of  whether  they  represent  rent  or  interest  or 
wages.  For  example,  a  small  trader  may  own  his  land  and 
store,  his  capital,  and  contribute  his  own  labor.  At  the  end 
of  a  year  his  total  gains  may  amount  to  one  thousand  dollars. 
These  he  considers  as  one,  and  calls  the  whole  income  profits. 
But,  after  our  discussion  of  rent  and  interest,  it  will  readily 
be  seen  that  this  loose  phraseology  would  be  very  mislead- 
ing to  the  economist.  Therefore,  in  economics,  profits  is 
employed  to  mean  but  one  thing,  —  the  reward  of  managing 
abihty.  It  is  the  return  that  the  entrepreneur  gets  for  his 
part  in  production,  just  as  rent  is  the  return  on  land,  or 
interest  the  return  on  capital. 

To  understand  more  clearly  the  character  of  profits  we 
must  thoroughly  comprehend  the  nature  of  managing  ability 
which  is  the  entrepreneur's  distinctive  characteristic.  Al- 
ready in  a  previous  chapter  we  have  referred  to  the  entre- 
Nature  of  prcneur  as  the  industrial  manager.  Managing 
managing       ability  implies    two  things,    (i)   labor   and   (2) 

'  ^"  something    to    manage.     Now,    this    something 

which  is  managed  is  of  course  capital.  Consequently 
managing  ability  represents  a  united  control  of  capital  and 
labor.  Skill,  judgment,  insight,  efficiency, — all  are  re- 
quired in  managing  abihty.  It  is  not  necessary  that  the 
entrepreneur  or  manager  own  the  capital  which  he  manages, 
although  it  is  perfectly  possible  for  him  to  be  the  owner 
as  well  as  the  manager.     However,  to-day  the  industrial 


The  Theory  of  Profits 


283 


manager  is  intrusted  with  the  capital  contributed  by  thou- 
sands of  stockholders. 

If,  then,  the  entrepreneur  represents  a  combination  of 
capital  and  labor,  profits,  which  is  his  reward,  must  represent 
the  union  of  interest  and  wages.  But  in  this  union  wages 
is  by  far  the  greater  factor,  because  the  entre-  Nature  of 
preneur  is  essentially  a  laborer.  His  profits  are  P^'oSts. 
largely  wages.  This  fact  that  wages  constitutes  the 
greater  part  of  profits  must  always  be  borne  in  mind.  The 
incomes  of  our  American  managers  are  made  up  largely  of 
the  return  on  their  industrial  effort.  Since,  however,  it  would 
be  confusing  to  speak  of  the  wages  of  a  railroad  organizer 
and  of  the  wages  of  a  bricklayer,  we  especially  employ  the 
term  ''profits"  to  represent  the  reward  of  the  industrial 
manager.  This  complete  differentiation  of  the  entrepre- 
neur, on  the  side  of  production,  and  of  profits,  on  the  side  of 
distribution,  may  be  represented  by  the  following  diagram : 

DISTRIBUTION 


i 

^^^  "'  '-^B 

RENT 

INTEREST 

''      i 

PROFITS '~^^^ 

WAGES 

f 

i 

''   4 

A 

WEALTH 

V 

' 

, 

V 

\ 

,- 

WND 

CAPITAL 

i 

MANAGING 
AUILITY 

LABOR 

PRODUCTION 


In  this  diagram  we  notice  that,  instead  of  three,  there 
are  now  four  factors  in  production  as  well  as  four  shares  in 


284  Elements  of  Economics 

distribution.  Managing  ability  has  sprung  from  a  union 
of  capital  and  labor,  while  profits  combines  interest  and  wages. 
In  these  two  new  elements,  —  managing  ability  and  profits, 
—  brought  about  by  modern  economic  conditions,  the  rela- 
tive importance  of  capital  and  interest  on  the  one  hand  and 
of  labor  and  wages,  on  the  other  is  shown  by  the  cross-sec- 
tioned parts  of  the  diagram.  No  attempt  has  been  made, 
however,  to  show  the  relative  importance  of  the  different 
factors  in  production,  or  the  relative  size  of  the  different 
shares  in  distribution. 

The  Law  of  Profits.  —  We  are  now  ready  to  consider  the 
question  of  how  profits  are  determined.  Why  should  the 
profits  of  one  industrial  manager  differ  from  the  profits  of 
another?  To  answer  this  question  we  must  first  examine 
differences  in  managing  ability  upon  which  these  profits 
depend. 

While  managing  ability  is  of  various  kinds  and  degrees, 
entrepreneurs  may,  in  general,  be  conveniently  grouped 
into  four  classes.  At  the  head  of  this  group  of  industrial 
managers  are  those  who  possess  phenomenal  managing 
ability.  They  stand  out  in  bold  relief  against  the  back- 
ground of  normal  power  in  industrial  management.  Had  a 
man  of  this  phenomenal  power  in  business  a  corresponding 
ability  in  art  or  literature,  he  would  become  as  famous 
as  Michael  Angelo  or  Shakespeare.  It  is  needless  to  say 
Grades  of  ^^^^  ^^^  number  of  men  in  this  class  is  extremely 
entrepre-  hmited.  Next  to  the  men  of  phenomenal  power 
come  those  of  unusual  managing  abihty.  They 
are  men  of  talent,  but  just  fall  short  of  possessing  industrial 
genius.  Next  to  these,  come  the  men  of  ordinary  capacity 
in  industrial  management.  They  are  successful  business 
men  and  are  well  known  in  their  respective  communities. 


The  Theory  of  Profits 


285 


The  number  of  men  in  this  class  is  quite  large.  Finally,  in 
this  general  group  of  entrepreneurs,  come  the  men  of  small 
managing  abihty.  They  are  on  the  margin  of  business  suc- 
cess and,  as  entrepreneurs,  they  make  perhaps  a  httle  more 
profits  than,  as  laborers,  they  would  command  wages. 
Therefore  they  hover  about  the  margin  of  business  inde- 
pendence, —  sometimes  venturing  out  for  themselves,  and, 
again,  seeking  employment  under  cover  of  some  one's 
management.  Under  these  conditions,  therefore,  they  may 
be  said  to  possess  only  marginal  managing  abihty.  These 
different  grades  of  abihty  and  the  profits  they  respectively 
command  may  be  represented  by  a  diagram  with  the  prin- 
ciple of  which  we  are  already  familiar : 


^^^>.^ 

PROFITS        T^^^-v.^ 

^^"^^J 

-- 

J 

GENIUS 

K 

UNUSUAL   POWER 

L 
ORDINARY   CAPACfTY 

MARGINAL  ABILITY 

1 

From  this  diagram  it  will  be  seen  that  the  principle  which 
determines  degrees  of  profits  is  similar  to  that  determining 
differences  in  rent.  Just  as  we  have  different  grades  of  land 
with  varying  productivity,  so  we  have  different  classes  of 


286  Elements  of  Economics 

entrepreneurs  with  varying  capacity.  As  we  measure 
rents  on  the  basis  of  the  return  on  "  no-rent  "  land,  so  we 
Degrees  measure  profits  on  the  basis  of  the  return  on  the 
of  profits.  a  no-profit  "  class  of  entrepreneurs.  For  example, 
the  man  D,  in  the  diagram,  has  a  return  on  his  effort  repre- 
sented by  the  line  DE.  Of  this  return  DE,  LE  represents 
profits  and  is  known,  in  economics,  as  marginal  profits. 
The  man  A ,  however,  has  a  much  larger  return,  represented 
by  AH,  of  which  IH  is  profits.  In  both  cases  the  return  of 
these  men  on  their  managing  abiHty,  that  is,  their  profits, 
has  been  measured  by  using  the  return  of  the  "  no-profit  " 
class  with  marginal  ability  as  a  common  basis  of  compari- 
son. It  will  be  seen,  therefore,  that  these  men  of  marginal 
ability,  used  to  represent  the  "  no-profit  "  class  of  managers, 
serve  the  same  purpose  as  the  "  no-rent  "  land  in  the  theory 
of  rent.  It  must  be  remembered,  however,  that  this  "  no- 
profit  "  class,  just  like  the  "  no-rent  "  land,  has  some  return 
for  its  effort ;  but  this  return  is  just  the  return  of  ordinary 
labor.  Therefore,  the  law  of  profits  may  be  thus  sum- 
marized :  the  profits  of  any  given  entrepreneur  will  be 
the  difference  between  his  return  and  the  return  of  the 
"  no-profit  "  class  of  entrepreneurs. 

We  are  now  in  a  position  to  make  a  clear  distinction  be- 
The  con-  tweeu  interest  and  profits.  Formerly  the  capi- 
ciusions:        tafist  and  entrepreneur  were  thought  of  as  one, 

Importance  ,    . 

ofentre-  ^.Tio.  interest  and  profits  were  regarded  as  syn- 
preneur.  onymous.  To-day,  however,  they  are  being 
dift'erentiated  both  in  production  and  in  distribution.  In 
the  past  few  decades,  the  industrial  manager  has  assumed 
such  great  importance  and  has  become  so  distinctive  in 
character,  that  his  part  in  production  and  his  share  in  dis- 
tribution merit  separate  consideration. 


The  Theory  of  Profits  ■  287 

The  monopoly  power  of  the  entrepreneur  and  its  effect  on 
prices  have  already  been  considered.     Should  this  monop- 
oly power  increase  and  should  prices  continue  to  be  forced 
above  a  competitive  level,  much  of  the  income  of  society  may 
be  converted  into  the  profits  of  the  entrepreneur,    ^j-^^^  ^, 
There  is  little  doubt  that,  to  a  certain  extent,  this  monopoly 
has  taken  place ;    and  that,  should  it  continue, 
the  share  that  goes  to  profits  in  the  general  distribution  of 
wealth  would  grow  at  the  expense  of  some  other  share  in 
distribution. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  WHiat  are  the  chief  elements  in  business  success  ? 

2.  Do  unsuccessful  employers  pay  less  wages  than  those  who  make 
large  profits  ? 

3.  What  is  the  effect  of  competition  on  profits  ? 

4.  What  devices  do  entrepreneurs  sometimes  employ  to  escape 
competition  ? 

5.  What  do  you  think  h.as  been  the  basis  of  most  of  the  more  re- 
cently acquired  large  fortunes  in  this  country  ? 

6.  The  syndicate  which  underwrote  the  securities  of  the  U.  S. 
Steel  Corporation  is  said  to  have  made  over  $40,000,000.  Was  that 
profit  ?     Do  you  think  it  was  earned  ? 

7.  .Are  the  profits  of  a  business  man  a  good  measure  of  his  service 
to  society  in  the  production  of  wealth  ? 

8.  Do  profits  tend  to  an  equilibrium  as  between  different  individ- 
uals?    Different  occupations?     Different  places ? 

9.  Is  a  restriction  of  profits  ever  justifiable  ? 

REFERENCES 

The  Distribution  of  Wealth  —J.  B.  Clark. 
The  Theory  of  Prosperity  —  S.  N.  Patten. 
Pr'nciplcs  of  Economics  —  .Alfred  Marshall. 
Principles  of  Economics  —  E.  R.  A.  Scligman. 
Theory  of  Business  Enterprise  —  T.  Vcblcn. 


CHAPTER  XXXVI 

The  Theory  of  Wages 

I.  Nature  of  wages 

1 .  Meaning  of  wages  : 

a.  Money  wages 

b.  Real  wages 

2.  Importance  of  money  wages 

3.  What  the  term  includes 

II.  Groups  of  laborers 
I.  Four  main  classes  : 
•  a.  The  leaders 

b.  The  business  and  professional  men 

c.  The  skilled  laborers 

d.  The  unskilled  workers 

III.  What  determines  group  wages 

1 .  Productive  power : 

a.  Meaning  of  productivity 

b.  Importance  of  this  principle 

2.  Monopoly  power : 

a.  Its  meaning  and  use 

b.  How  wages  vary  with  it 

3.  Why  group  wages  are  stable: 

a.  The  progressive  advance 

b.  Children  move  up 

4.  The  conclusion. 

Nature  of  Wages.  —  In  the  discussion  of  the  distribution 
of  wealth,  the  term  "  wages  "  is  used  to  represent  the  share 
that  labor  receives  for  its  part  in  production.     The  word  is 


The  Theory  of  Wages  289 

so  universally  employed  to  designate  this  reward  of  labor 
that  it  is  seldom  one  stops  to  consider  the  significance  of 
the  modern  method  of  wage  payment.  Money,  Meaning 
of  course,  is  to-day  the  most  usual  form  in  which  °^  wages, 
wages  is  paid.  However,  we  have  seen  that  money  wages 
is  not  the  same  as  real  wages,  which  represents  the  purchasing 
power  of  the  money.  And,  if  there  were  no  money,  there 
would  still  be  wages  because  labor  would  still  produce  and 
be  entitled  to  a  reward  for  its  part  in  production.  In  this 
case,  wages  would  be  received  in  the  form  of  actual  products. 

But  labor,  to-day,  is  not  paid  in  the  form  of  actual  prod- 
ucts. Everywhere  we  find  labor  not  receiving  what  it 
actually  produces,  but  being  paid  in  the  form  of  money. 
Why,  then,  has  it  become  necessary  for  society  to  adopt  this 
uniform  wage  system  for  the  payment  of  labor?  importance 
The  productive  processes  of  modern  society  are  of  money 
highly  complicated.  There  is  no  longer  a  simple,  ^'  ^^  ' 
direct  relation  between  labor  and  the  materials  of  produc- 
tion ;  and,  consequently,  the  laborer  no  longer  receives  the 
actual  goods  he  creates.  A  great  intermediate  class,  known 
as  employers,  has  grown  up  in  industrial  society.  This  class 
owns  the  tools  of  production,  offers  the  laborer  employment, 
takes  what  he  produces,  and,  in  exchange,  gives  him,  through 
a  uniform  wage  system,  a  certain  sum  of  money  called  wages. 
The  payment  of  money  wages,  however,  should  not  ob- 
scure the  real  relation  between  labor  and  the  product  it 
creates. 

Another  important  consideration  to  bear  in  mind  in  a 
discussion  of  the  nature  of  wages  is  the  inclusive  character 
of  the  term.  Not  merely  physical  laborers  receive  wages. 
Since  wages  is  the  return  for  industrial  effort,  the  term  applies 
to  the  rewards  of  all  forms  of  industrial  activity,  whether 


290  Elements  of  Economics 

mental  or  physical.  We  have  seen  that  even  profits,  the 
return  for  managing  ability,  is  a  form  of  wages  because  the 
What  the  manager  is  essentially  a  laborer.  At  the  same 
term  in-  time,  the  ofhce  boy  receives  wages  in  return  for 
his  labor.  In  fact,  in  the  United  States,  prac- 
tically all  of  those  gainfully  employed  are  working  for 
wages,  so  that  the  population  of  the  United  States  may  well 
be  described  as  a  "  wage-earning  "  group. 

Groups  of  Laborers.  —  Since  wages  include  the  incomes 
of  so  many  different  laborers,  it  is  necessary  to  classify  these 
laborers  in  order  to  understand  the  reasons  for  the  differ- 
ences in  the  wages  they  receive.  In  the  first  class  are  the 
Four  main  leaders,  —  those  men  of  such  phenomenal  power 
classes.  ^^i^^  ^j^^y  attract  attention  everywhere.  While 
they  are  not  necessarily  confined  to  the  class  of  industrial 
.  entrepreneurs,  it  is  here  that  they  are  chiefly  found.  Next 
to  these,  come  the  large  body  of  successful  business  and  pro- 
fessional men  who  stand  out  prominently  in  every  commu- 
nity. Physicians,  lawyers,  and  educators,  as  well  as  mer- 
chants and  engineers,  may  be  included  in  this  group.  The 
next  class  of  laborers  is  made  up  of  the  great  mass  of  skilled 
workers  that  have  received  some  form  of  special  training. 
Not  only  mechanics  but  also  trained  clerks  and  bookkeepers 
are  members  of  this  class.  Finally,  there  is  the  horde  of 
unskilled  workers  that  range  all  the  way  from  the  house-to- 
house  canvasser  to  the  immigrant  street  cleaner.  These 
last  two  classes  merge  imperceptibly  into  each  other,  and  the 
laborers  forming  the  connecting  Hnk  are  often  spoken  of  as 
semi-skilled  workers. 

These  different  classes  of  laborers  naturally  increase  in 
number,  but  decrease  in  importance,  as  they  go  downward 
from  one  group  to  another. 


The  Theory  of  Wages  291 

What  determines  Group  Wages.  —  At  the  outset,  it 
will  be  noticed  that  the  wages  of  group  (i),  the  leaders, 
will  be  as  great  as  their  number  is  small,  and  that  the  wages 
of  group  (4),  the  unskilled  workers,  will  be  as  small  as  their 
number  is  great.  Consequently,  many  writers  Depends  on 
have  taken  the  position  that  wages  depend  upon  productive 

r  1    1  power: 

the  relation  between  the  supply  of  labor  and  the 
demand  for  it.  But  this  explanation  of  wages  does  not  reach 
the  heart  of  the  problem.  Why  should  the  supply  of  certain 
kinds  of  labor  be  small,  and  why  should  the  demand  for 
them  be  great  ?  The  answer  to  this  question  \vill  give  the 
fundamental  reason  why  wages  vary. 

In  the  first  place,  it  is  evident  that  men  of  high  productive 
capacity  can  command  high  wages.  Tliis  kind  of  labor  is 
in  demand  because  its  productive  power  is  great  and  its 
supply  is  limited.  The  principle  of  productivity  in  this 
case  plays  the  dominant  part  in  determining  the  Meaning 
wages  that  such  a  group  of  men  receives.     By  of  produc- 

...  1  .  1  •  1     iivity. 

productivity  is  meant  the  creative  power  which 
individuals  possess  in  varying  degrees  and  whereby  they 
are  able,  either  directly  or  indirectly,  to  produce  material 
wealth.     On  all  sides  there  are  evidences  of  this  kind  of 
capacity. 

Throughout  the  whole  theory  of  wages,  this  principle  of 
productivity  must  be  constantly  kept  in  mind.     In  fact,  it 
forms  the  foundation  of  the  general  theory  of  distribution. 
Not  only  labor,  Init  also  capital,  depends  upon  j,„po^iance 
productive  power  as  a  basis  upon   which  each  of  this 
may  claim  a  share  in  the  distribution  of  wealth. 
As  Professor  H.  R.  Seager  points  out,  "  the  law  which  de- 
termines  the  division   of  the  j)ro(luct  between  labor  and 
capital  in  competitive  industries  for  a  society  in  a  state  of 


292  Elements  of  Economics 

normal  equilibrium  is  that  each  receives  the  share  that  it 
produces."  If  labor  did  not  produce  anything,  it  would  not 
be  entitled  to  anything.  The  principle  of  productivity  thus 
gives  rise  to  the  idea  of  merit,  and  man  feels  that  he  is  re- 
ceiving what  he  deserves.  Labor  is  entitled  to  wages  be- 
cause it  has  played  a  vital  part  in  producing  wealth.  But 
to-day,  in  the  absence  of  a  purely  competitive  regime, 
does  labor  receive  exactly  what  it  produces?  Does  the 
principle  of  productivity,  and  this  principle  alone,  determine 
under  present  conditions  the  wages  of  a  group  of  laborers? 
While,  for  example,  it  is  true  that  men  of  great  productive 
power  command  large  wages,  yet  it  seems  equally  obvious 
that  men  sometimes  receive  more  or  less  wages  than  their 
capacities  warrant. 

The  wages  of  any  class  of  labor  seems  to  depend  not 
only  upon  its  productive  power  but  also  upon  its  monopoly 
power.  The  more  monopoly  power  a  group  has  the  higher 
Depends  on  will  be  its  wagcs.  Monopoly  power  has  already 
monopoly       |-,ggj^  defined  as  some  unusual  power  that  enables 

power:  ^ 

Its  mean-  ^hc  holder  to  fix  a  price  above  the  competitive 
ing  and  use.  figure.  It  is  frequently  exercised  by  the  entre- 
preneur when  he  controls  prices  without  regard  to  the  laws 
of  competition.  This  unusual  power  may  also  be  exercised 
in  behalf  of  labor  either  individually  or  collectively.  Either 
by  acquiring  some  special  abihty,  or  by  securing  power 
through  organization,  a  laboring  class  may  regulate  the 
price  of  its  labor  and  command  its  wages  without  any 
absolute  regard  to  the  actual  value  of  the  product.  In  both 
cases,  through  an  unusual  control  over  labor  resources,  mo- 
nopoly power,  in  addition  to  productive  power,  determines 
the  wages  paid  to  labor. 
This  dependence  of  wages  on  labor's  monopoly  power  is 


The  Theory  of  Wages  293 

seen  when  we  examine  the  monopoly  power  of  each  class  of 
laborers.  Enough  has  been  said  of  the  great  monopoly 
power  of  the  leaders  in  industry  and  of  its  effect  on  their 
income  through  the  control  of  prices.  At  the  other  extreme 
we  have  the  class  of  unskilled  labor  with  minimum  wages  and 
practically  no  monopoly  power,  that  is,  no  unusual  power  to 
control  wages.  Because  of  this  absence  of  How  wages 
monopoly  power,  the  cost  of  subsistence  is  prac-  ^^LX^y 
tically  the  only  determinant  of  wages  for  this  power. 
group  of  laborers.  Above  them,  the  skilled  laborers  are 
much  better  off,  because  their  monopoly  power  is  increased 
both  by  individual  skill  and  by  group  organization.  The 
group  of  successful  business  and  professional  men  have  still 
greater  monopoly  power  (secured  largely  through  individual 
effort)  and  therefore  command  still  higher  wages.  Thus  it 
may  be  seen  that  in  all  these  cases  group  wages  vary  not 
only  with  productive  power,  but  also  with  monopoly  power. 
This  principle  determining  group  wages  apphcs  hkcwise  to 
individual  wages. 

In  a  discussion  of  group  wages  there  is  another  question 
that    naturally    arises.     Why    are   group    wages    more    or 
less  stable  ?     That  is,  why  does  the  wage  of  the  unskilled 
laborer  remain  approximately  at  ten  dollars  per  week  and 
that  of  the  skilled  worker  at  twenty  dollars  per  ^^^  ^^^^^ 
week  ?   The  answer  to  this  question  is  clear.     The  wages  are 
progressive  members  of  one  group  advance    to 
the  next  higher,  thus  relieving  an  undue  pressure  of  numbers 
in  the  group  below.     For  example,  the  great  influx  of  immi- 
grants, who  have  joined  the  ranks  of  unskilk-fl  labor  in  this 
country,  has  forced  the  American  unskilled  worker  to  seek 
some  special  training  fitting  him  for  more  skilled  labor.     His 
standard  of  living  will  not  submit  to  the  low  wage  that  for- 


294  Elements  of  Economics 

eign  labor  accepts.  Thus  the  progressive  who  move  up 
make  way  for  the  newer  ones  who  come  in.  At  the  same 
time,  the  children  of  skilled  and  unskilled  laborers,  who  are 
dissatisfied  with  the  economic  position  of  their  parents, 
frequently  move  up  to  the  class  of  business  or  professional 
men.  This  general  advance,  therefore,  from  one  group  to 
another,  brought  about  by  the  movement  of  the  more  pro- 
gressive and  younger  elements,  results  in  a  general  mobihty 
of  labor  whereby  overcrowding  in  one  group  is  minimized 
and  the  wages  of  the  various  groups  remain  more  or  less 
stationary. 

From  this  presentation  of  the  theory  of  wages,  it  will  be 
observed  that  two  factors  —  productivity  and  monopoly 
power  —  are  of  prime  importance  in  determining  the  wages 
The  conciu-  of  a  given  group  or  of  a  particular  indi\ddual.  If 
^^°""  it  were  not  for  productivity,  there  would  be  no 

wages,  and  if  it  were  not  for  monopoh^  power,  wages  would 
not  be  what  they  actually  are.  Under  ideal  conditions  of 
pure  competition '  the  productivity  principle  would  be 
sufficient  to  explain  wages  in  any  given  case.  Each  individ- 
ual would  receive  as  wages  that  which,  in  competition  with 
others,  he  produced.  But  when  competition  is  checked,  as 
to-day  it  actually  is,  the  amount  of  wages  that  a  group  or 
an  individual  can  command  depends  almost  as  much  upon 
his  monopoly  power,  that  is,  his  unusual  power  to  control 
the  price  of  labor,  as  upon  his  productive  power,  that  is,  the 
wealth  he  actually  produces. 


The  Theory  of  Wages  295 


TOPICS   FOR   CLASS   DISCUSSION 

1.  What  was  the  wage  fund  theory  ? 

2.  What  was  the  "Iron  Law  of  Wages"  ? 

3.  WTio  was  Malthus  ?     WTiat  did  he  teach  ? 

4.  \Vhat  interest  have  the  rich  in  an  abundance  of  labor  ? 

5.  WTiat  is  meant  by  the  "sweating  system"  ? 

6.  What  is  the  effect  of  free  pubUc  schools  on  the  comparative 
wages  of  skilled  and  unskilled  laborers  ? 

7.  Speaking  generally,  does  the  laborer  gain  or  lose  by  working 
under  conditions  of  abundance  of  land  and  capital  ? 

8.  If  a  factory  town  is  destroyed  by  fire,  will  wages  throughout  the 
country  at  large  rise  or  faU  ? 

9.  iNIake  a  list  of  the  factors  affecting  the  demand  for  street 
cleaners  in  Chicago  ;  a  physician  in  a  small  town ;  a  barber. 

10.  What  would  you  have  to  pay  a  cook  in  an  Alaskan  gold-mining 
camp? 

11.  In  your  own  individual  case,  what  do  you  think  will  determine 
your  wages  in  after  life  ? 

REFERENCES 

Principles  of  Economics  —  F.  A.  Fetter. 
Introduction  to  Economics  —  H.  R.  Seager. 
The  Wages  Question  —  F.  A.  Walker. 
The  Distribution  of  Wealth  —  J.  B.  Clark. 
The  Theory  of  Prosperity  —  S.  N.  Patten. 


CHAPTER  XXXVII 

The  Outlook  for  Distribution 

I.  Labor's  monopoly  power 

1 .  Individual  monopoly  power : 
a.  Acquired  capacity 

h.  Inherited  capacity 

2.  Group  monopoly  power: 
a.  Its  meaning 

h.  An  example 

c.  Where  it  is  developed 

d.  How  it  may  be  exercised 

3.  The  outlook  in  the  United  States 

II.  Labor's  power  of  substitution 

1 .  From  standpoint  of  consumption : 
a.  Meaning  and  examples 

h.  The  consequence 

2.  From  standpoint  of  production  :  * 
a.  Meaning  of  mobility  of  labor 

h.  Examples  of  this  mobihty 

3.  Double  effect  of  this  power  on  labor  : 
a.  As  producer 

h.  As  consumer 

III.  Relative  rates. of  increase  of  the  factors  in  production 

1.  Importance  of  rate  of  increase 

2.  Conditions  in  the  United  States: 
a.  In  regard  to  capital 

h.  In  regard  to  land 

c.  In  regard  to  labor 

d.  How  labor  profits 

3.  General  conclusion 

296 


The  Outlook  for  Distribution  297 

In  concluding  a  discussion  of  the  theory  of  distribution, 
it  is  important  to  understand  the  probabiHty  of  the  differ- 
ent shares  of  wealth  increasing  or  diminishing.  From  the 
standpoint  of  individual  welfare,  the  future  of  labor  is  espe- 
cially significant  because  the  great  mass  of  people  depend 
altogether  upon  wages  for  their  support  and  material  happi- 
ness. In  determining  what  chance  labor  has  of  increasing 
its  share  in  the  general  distribution  of  wealth,  it  will  be 
found  that  much  will  depend  (i)  upon  the  growth  of  labor's 
monopoly  power,  (2)  upon  the  exercise  of  its  power  of  sub- 
stitution, and  (3)  upon  its  rate  of  increase  as  compared  with 
that  of  the  other  factors  in  production. 

Labor's  Monopoly  Power.  —  In  the  lowest  group  of 
laborers  we  have  seen  that  there  is  practically  no  monopoly 
power  and  that  competition  fixes  the  wage  almost  at  the 
minimum  of  subsistence.  In  all  the  other  groups,  however, 
monopoly  power  plays  a  great  part  in  determining  the  upper 
hmit  of  wages  and  is  manifesting  itself  in  an  increasing 
number  of  directions.  The  monopoly  power  of  the  laborer 
may  be  exercised  either  individually  or  collectively.  The 
individual  may  possess  this  unusual  control  over  individual 
labor  either  as  a  result  of  special  training,  or  by  monopoly 

oowcr 

reason  of  some  inherited  tendency  that  has  been 
developed  and  cultivated.  For  example,  the  man  who  has 
made  a  particular  study  of  the  textile  business  at  home  and 
abroad,  and  who  has  also  made  a  close  study  of  business 
detail  and  knows  how  to  manage  large  numbers  of  men, 
possesses  by  reason  of  his  training  a  great  monopoly  power. 
This  power  enables  him  to  command  a  salary  of  perhaps  ten 
thousand  dollars  a  year.  In  a  similar  manner  the  man 
who,  through  inherited  ability  and  some  special  training,  is 
able  to  draw  striking  cartoons  and  caricatures  enjoys  such  a 


298  Elements  of  Economics 

great  monopoly  power  that  he  may  be  able  to  command  a 
salary  of  twenty  thousand  dollars  a  year.  The  monopoly 
power  of  the  cartoonist  was  inherited,  while  that  of  the 
manager  was  acquired ;  in  both  cases,  however,  it  was  indi- 
vidual. 

Group  monopoly  power,  on  the  other  hand,  is  of  quite  a 
different  character.  In  this  case  labor  relies  for  its  control 
over  wages  not  on  great  individual  power,  but  on  collective 
action.  Group  monopoly  is  the  power  whereby  a  group, 
Group  through  organization,  is  able  to  control  the  price 

monopoly  of  labor  and  to  regulate  its  own  wages.  For 
°^   '  example,  suppose  thirty  hodcarriers  are  working 

for  one  dollar  and  seventy-five  cents  a  day;  and  suppose 
further  that  there  are  no  other  hodcarriers  near  by,  and 
that  there  is  plenty  of  construction  work  in  the  neighbor- 
hood. It  occurs  to  these  men  that  if  they  unite  together 
and  demand  two  dollars  a  day,  they  will  be  able  to  increase 
their  wages.  This  they  do  and,  by  their  organization,  create 
a  monopoly  power  which  enables  them  to  secure  the  addi- 
tional wage  demanded.  Among  skilled  laborers  the  monop- 
oly power  of  organization  is  everywhere  in  evidence  and 
competition  plays  a  secondary  part  in  determining  wages. 
This  monopoly  power  may  be  exercised  not  only  through  the 
union  and  strike  method,  but  also  through  minimum  wage 
laws  such  as  exist  in  Australia  and  New  Zealand. 

In  America  there  are  many  evidences  of  the  monopoly 
power  of  labor.  From  the  standpoint  of  individual  monop- 
The  out-  oly,  the  emphasis  on  education  and  special 
United  training  is   a  most  hopeful  indication   for   the 

States.  future  of  labor.     Everywhere  the  necessity  for 

increased  efficiency  is  being  pointed  out  and  the  means  of 
securing  it  provided.     At  the  same  time,   the  monopoly 


The  Outlook  for  Distribution  299 

of  organization  is  becoming  more  and  more  powerful. 
Men  are  beginning  to  realize  how  much  more  can  be  accom- 
plished by  collective  than  by  individual  action.  Thus, 
through  the  increase  both  of  individual  and  group  monopoly, 
labor  possesses  a  means  of  enlarging  its  share  of  wages. 

Labor's    Power    of    Substitution.  —  Another    advantage 
that  labor  enjoys  is  found  in  the  exercise  of  its  power  of 
substitution.     This  power  is  simply  the  abihty  of  labor  to 
substitute  one  good  for  another,  or  one  employer  for  another. 
For  example,  when  the  price  of  oil  becomes  too  high,  gas  or 
electricity  may  be   substituted.     If   the  price  of  soap  is 
raised,  a  washing  powder  may  be  used.     When  From 
meat  rises   to  a   prohibitive  figure,   some  other  of^^on-°''^ 
form  of  proteid  diet  will  take  its  place.     In  this  sumption, 
manner,  by  substituting  one  product  for  another,  the  con- 
sumer escapes  the  extortion  of  the  monopohst,  and  labor,  by 
forcing  prices  down,  gets  the  benefit  of  income  that  would 
otherwise  go  to  the  monopolist  in  the  form  of  monopoly 
prices.     Labor's  real  wages  is  increased. 

Again,  by  reason  of  its  mobility  and  monopoly  power, 
labor  may  substitute  one  employer  for  another.     By  mobil- 
ity of  labor  is  meant  the  freedom  with  which  labor  moves 
from  one  place  to  another  and  from  one  employer  to  another. 
In  the  days  of  feudalism,  the  serf  was  attached  From 
to   the   soil    and   was    prevented   from    moving  of^pro^*"" 
from  place  to  place.     The  peasant  was  born  an   duction. 
agricultural   worker  on  a  great  estate  and  there  he  was 
obliged  to  live  and  die.     To-day,  however,  in  the  United 
States,  a  laborer  moves  easily  from  place  to  place,  and  fre- 
quently from  one  occupation  to  another.     If  he  is  dissatis- 
fied with  conditions  in  one  city  or  in  one  occupation,  he 
seeks  employment  in  another  offering  him  a  larger  return. 


300  Elements  of  Economics 

An  advancing  standard  of  living  always  impels  labor  to 
seek  that  industry  or  locality  where  it  will  receive  its  greatest 
reward.  The  labor  union,  through  its  monopoly  of  organiza- 
tion, makes  secure  this  higher  standard  of  Hving  when  it  is 
once  attained.  This  mobility  of  labor  naturally  results  in 
more  or  less  uniformity  of  wages  within  the  same  general 
group  of  laborers ;  but,  nevertheless,  there  is  just  enough 
difference  in  wages  to  cause  labor  to  substitute  one  employer 
for  another.  This  power  of  substitution  may  be  used  against 
Double  the  employer  and  in  favor  of  labor  because,  by 

thir^ower  Tcason  of  the  growth  of  labor  organization,  the 
on  labor.  employer  himself  cannot  substitute,  as  freely 
as  in  former  days,  one  laborer  for  another.  As  a  producer, 
therefore,  labor  may  use  the  power  of  substitution,  in  con- 
junction with  its  monopoly  power,  to  regulate  its  own  wages ; 
while,  as  a  consumer,  labor  may  use  this  same  power  to 
increase  its  income  by  preventing  the  entrepreneur  from 
fixing  prices  at  the  monopoly  point  in  order  to  swell  his  own 
profits. 

Relative  Rates  of  Increase  of  the  Factors  in  Production.  — 
Still  another  element  favorable  to  the  increase  of  wages  is 
found  in  the  relatively  slow  rate  at  which  labor  increases 
when  compared  with  the  other  factors  in  production.  In 
order  that  the  wages  of  labor  may  increase,  the  value  of  its 
share  in  the  general  distribution  of  wealth  must,  of  course. 
Importance  become  greater.  Now,  as  Professor  S.  N.  Patten 
of  rate  of  has  shown,  the  value  of  the  share  of  any  factor 
^"  '  in  production,  —  whether  land,  labor,  or  capital, 
— depends,  so  far  as  these  factors  alone  are  concerned,  upon 
its  rate  of  increase  as  compared  with  that  of  the  other 
factors  in  production.  Scarcity  plays  an  important  part  in 
determining  the  value  of  labor  just  as  it  does  in  determining 


The  Outlook  for  Distribution  301 

the  value  of  gold  or  silver.  If  gold,  for  example,  is  scarce, 
its  value  will  be  great;  while  if  plentiful,  its  value  will 
decrease.  Just  so  it  is  with  labor.  If  labor  increases  at  a 
relatively  slow  rate,  its  value  as  measured  in  wages  will  be 
great ;  while  if  its  rate  of  increase  is  relatively  rapid,  its 
value  win  decrease. 

Now,  in  the  United  States,  during  the  past  century,  there 
is  Uttle  doubt  concerning  the  relative  rates  of  increase  of 
land,  labor,  and  capital.  Capital  has  increased  conditions 
so  enormously  that  the  rate  of  interest  has  in  United 
steadily  declined.  Through  wonderful  improve-  ^*^*®^- 
ments  in  agriculture,  land  has  likewise  yielded  a  greater 
and  greater  return.  However,  labor,  the  remaining  factor 
in  production,  has  increased  at  a  rate  which  is  slow  when 
compared  with  capital's  rate  of  increase  or  land's  rate  of 
increase.  To-day,  evidence  of  labor's  slow  rate  of  increase 
is  frequently  found  in  utterances  against  "  race  suicide." 
Therefore,  since  labor's  rate  of  increase  has  been  slower  than 
that  of  capital  or  land,  it  is  fair  to  conclude  that  its  share  of 
wealth  has  increased  at  a  proportionally  greater  rate  than 
that  of  capital  or  land.  From  this  point  of  view,  therefore, 
labor  may  be  said,  broadly  speaking,  to  have  received  the 
greatest  benefits  from  production. 

Briefly  the  problem  of  distribution  may  be  thus  summa- 
rized :  Rent  is  paid  to  the  landlord  because  of  his  control 
over  natural  resources.  Interest  goes  to  the  capitalist  in 
return  for  the  use  of  capital  in  industry.  Profits  is  paid  to 
the  entrepreneur  because  of  his  special  ability  and  the  risks 
he  undertakes.  Wages,  finally,  is  paid  to  the  General 
laborer  in  return  for  industrial  effort  and  in  conclusion, 
proportion  to  his  productive  and  monopoly  power. 
But,    while    all     these    shares    are    thus    divided    up    in 


302  Elements  of  Economics 

theory,  they  are  not  always  so  separately  distributed  in 
practice.  One  individual,  by  representing  several  factors 
in  production,  may  receive  several  shares  in  distribution, 
while  another  individual  may  receive  but  one  share.  In 
America,  this  may  be  slowly  taking  place.  Broadly  speaking, 
the  laborer  usually  receives  only  one  of  these  shares  — 
wages  —  while  the  entrepreneur  frequently  takes  the  rest. 
As  American  society  evolves,  the  landlord  controlling  natu- 
ral resources,  the  factory  owner  controlKng  capital,  the 
entrepreneur  taking  risks,  and  the  monopolist  controlling 
prices,  all  tend  to  become  the  same  person.  Through  large 
scale  production,  one  business  interest  may  control  all  the 
important  processes  of  industry  from  the  raw  to  the  finished 
product,  and  take  into  one  treasury  the  different  incomes 
from  several  distributive  channels. 

TOPICS  FOR   CLASS  DISCUSSION 

1.  WTiat  reasons  can  you  offer  to  explain  why  the  wages  of  women 
are  generally  lower  than  the  wages  of  men  ? 

2.  What  conditions  fix  the  maximum  and  minimum  limits  to  the 
rate  of  wages  in  a  particular  case  ? 

3.  What  connection  is  there  between  the  American  rate  of  wages 
and  American  labor-saving  devices  ? 

4.  By  what  methods  is  labor  increasing  its  monopoly  power  ? 

5.  Name  the  factors  in  modern  society  which  increase  the  mobility 
of  labor. 

6.  What  effect  should  the  increased  mobility  of  labor  have  on 
wages  in  different  sections  of  the  same  country  ? 

7.  Ordinarily  an  increased  demand  for  a  commodity  which  is  not 
absolutely  limited  in  amount  will  result  in  an  increased  supply.  To 
what  extent  would  this  be  true  of  laborers  ?     Of  labor  ? 

8.  Cite  cases  of  monopolistic  limitation  of  the  supply  of  labor. 

9.  Explain  the  operation  of  the  power  of  substitution. 

10.  What  factors  limit  the  power  of  the  entrepreneur  to  fix  wages  ? 


The  Outlook  for  Distribution  303 


REFERENCES 


The  Theory  of  Prosperity  —  S.  N.  Patten. 
The  Distribution  of  Wealth  —  J.  R.  Commons. 
The  Theory  of  Dynamic  Economics  —  S.  N.  Patten. 
The  Labor  ISIovement  in  America.  —  R.  T.  Ely. 
The  Distribution  of  Wealth  — J.  B.  Clark. 


PART   VI 
ECONOMIC   EXPERIMENTS   AND    PROGRAMS 

CHAPTER  XXXVIII 

Experiments  of  the  Employer 

I.  Profit  sharing 

1.  Its  meaning 

2.  Its  different  forms 

3.  Experiments  in  the  United  States: 

a.  Some  examples 

b.  Causes  of  failure  : 

(i)  Mobility  of  labor 

(2)  Number  of  unskilled  workers 

(3)  Lack  of  means 

II.  Welfare  work 

1.  Its  meaning 

2.  Its  origin 

3.  Recent  improvements  : 

a.  In  factories 

b.  In  stores  and  railways 

4.  Its  future 

III.  Philanthropic  work 

1.  Its  chief  problems  : 

a.  Relief  of  poverty 

b.  Maintenance  of  unfortunates 

c.  Prevention  of  distress 

2.  Its  legislative  program  : 

a.  Improved  working  conditions 

b.  Better  living  conditions 

304 


Experiments  of  the  Employer  305 

c.  Purer  diet 

d.  More  recreation  facilities 

e.  Practical  education 
3.  The  conclusion 

A  study  of  economics  would  not  be  complete  without  a 
discussion  of  the  leading  economic  experiments  and  programs 
that  have,  as  their  common  purpose,  the  improvement  and 
betterment  of  the  life  of  the  individual  and  of  the  com- 
munity. 

Profit  Sharing.  —  This  attempt  to  improve  the  condition 
of  the  laborer  originates  with  the  employer  either  from  a 
sense  of  duty  or  because  he  believes  he  will  himself  be  the 
ultimate  gainer  by  this  policy.  The  system  of  profit 
sharing  guarantees  the  worker,  in  addition  to  regular 
wages,  a  specified  share  of  the  profits  of  the  business.  In 
other  words,  it  presupposes  the  payment  of  ^,^^^^^^^^ 
wages,  and  then  shares  the  net  profits  with  the 
workers  in  a  certain  predetermined  proportion,  —  the  em- 
ployer voluntarily  giving  up  part  of  his  profits  in  order  that 
the  laborers  under  him  may  participate  in  their  enjoyment. 
The  simplicity  of  profit  sharing  is  greatly  in  its  favor. 

Profit  sharing  usually  takes  one  of  the  three  following 
forms:  (i)  the  employee  participates  in  the  ownership 
of  the  stock ;  (2)  the  employee  (chiefly  in  England  and  the 
United  States)  is  given  a  cash  bonus  in  propor-  its  different 
tion  to  his  wages  and  year's  labor ;  (3)  the  em-  ^*"'"^- 
ployee  enjoys  a  system  of  deferred  participation  in  profits. 
Under  this  last-named  system  each  year  a  percentage  of  the 
profits  is  credited  either  to  the  entire  body  of  employees  or 
to  specific  employees.  In  cases  where  the  percentage  is 
credited  to  employees  as  a  unit,  j)rofit  sharing  takes  the 
form  of  a  provident  fund.     In  order  to  share  in  this  fund, 


3o6  Elements  of  Economics 

the  employee  must  be  sick,  injured,  or  in  some  other  condi- 
tion of  need.  In  cases  where  profits  are  credited  to  employ- 
ees individually,  each  receives  his  share  either  when  he 
attains  a  specified  age,  or  when  he  has  remained  a  certain 
time  in  the  establishment,  or  when  he  suffers  an  unusual 
pressure  from  sickness  or  accident.  Tliis  system,  exten- 
sively employed  in  France,  has  received  Uttle  encourage- 
ment in  EngHsh-speaking  countries. 

While  profit  sharing  has  met  with  a  measure  of  success 
in  Europe,  it  is  not  looked  upon  with  general  favor  in  the 
United  States.  The  A.  S.  Cameron  Company  of  Jersey 
City  operated  a  fairly  successful  profit  sharing  scheme 
Experiments  beginning  in  1869  and  lasting  until  the  death  of 
in  United  Mr.  Cameron.  A  similar  experiment  of  the 
Brewster  Carriage  Company  of  New  York 
inaugurated  in  1870  was  abandoned  in  1872  when  the  work- 
men "  struck  "  for  an  eight-hour  day. 

There  is  only  one  instance  of  a  profit  sharing  scheme 
surviving  any  considerable  length  of  time  in  the  United 
Some  States  —  that  of   the  Peacedale  Manufacturing 

examples.  Company,  whose  successful  organization  of 
profit  sharing  dates  from  1878.  This  plan  is  not  a  full- 
fledged  system  of  profit  sharing.  No  set  proportion  of 
net  profits  is  paid,  nor  is  there  any  obligation  on  the  part 
of  the  firm  to  pay  any  bonuSo  During  some  years,  however, 
as  much  as  five  per  cent  on  the  wages  has  been  paid.  In  other 
years,  when  the  business  conditions  did  not  seem  to  warrant 
it,  nothing  has  been  granted.  The  N.  O.  Nelson  Company, 
manufacturers  of  plumbing  goods,  pays  its  employees  a 
bonus  in  stock.  On  the  whole,  the  American  experiments 
have  been  on  a  small  scale,  few  in  number,  and  in  only  a  few 
cases  have  they  adopted  a  true  profit  sharing  system. 


Experiments  of  the  Employer  307 

The  failure  of  profit  sharing  in  the  United  States  may  be 
variously  explained.  To  begin  with,  from  an  American 
standpoint,  the  system  of  sharing  profits  through  deferred 
payments  has  an  obvious  disadvantage.  It  im-  causes  of 
pHes  that  a  given  emplo}'ee  will  remain  under  one  f'^^^^"- 
employer  for  a  long  period  of  time.  In  America,  we  have 
seen  that  this  is  frequently  not  the  case.  Labor  is  mobile, 
moving  from  place  to  place  and  from  occupation  to  occupa- 
tion. This  mobihty  of  labor  is  one  of  the  means  employed 
for  its  betterment.  Seldom  do  men  remain  twenty  years 
under  one  employer.  A  system  of  deferred  payments, 
however,  works  on  the  principle  that  men  will  devote  their 
whole  lives  to  one  employer. 

Again,  this  system  works  best  in  trades  where  workmen 
are  highly  skilled  and  intelHgent.  In  the  average  American 
industry  a  common  labor  group  is  coming  more  and  more 
rapidly  to  the  front.  This  group  works  with  its  hands  and 
neglects  its  head.  The  deferred  payment  system  would 
not  appeal  strongly  to  its  members.  At  best,  business  is 
uncertain ;  and  the  average  employee  does  not  reUsh  the 
idea  of  working  on  the  deferred  payment  plan  for  a  firm 
which  may  become  insolvent  at  any  time  and  in  this 
manner  deprive  him  of  the  chance  to  share  in  the  fund  of 
profits. 

The  system  of  sharing  profits  with  employees  by  means 
of  shares,  and  by  requiring  them  to  be  owners  of  the 
company's  stock  before  they  are  allowed  to  share  in  the 
profits,  has  some  .serious  drawbacks.  The  latter  j^lan,  par- 
ticularly, is  well-nigh  out  of  the  question  for  the  lower 
grade  of  wageworker  who  has  a  family  dependent  on  him. 
He  needs  every  penny,  and  it  is  difficult  for  him  to  secure 
the    funds  to  purchase  the  stock.      If,  however,  he  does 


3o8  Elements  of  Economics 

succeed  in  participating  in  stock  benefits,  his  interest  will 

naturally  be  centered  in  that  particular  business  so  that  his 

freedom  of  action  is  curtailed.     In  fact,  this  whole  system 

of  profit  sharing  is  paternalistic  and  opposed  to  the  character 

of  the  American  workman. 

Welfare  Work.  —  Another  economic  experiment,  much 

less  fundamental   though  far  more  common    than    profit 

sharing,  is  welfare  work.     This  is  defined  by  Professor  John 

R.  Commons  as  "  all  of  those  services  which  an 
Its  meaning. 

employer  may  render  to  his  work  people  over  and 
above  the  payment  of  wages."  Employers  have  always 
done  some  welfare  work,  but  until  recently  such  efforts 
were  practically  unknown  to  the  general  pubHc. 

With  the  advent  of  the  National  Cash  Register  Company, 
however,  and  its  attempts  to  provide  abundantly  for  the  out- 
side wants  of  its  employees,  attention  was  widely  attracted 

T.     ._,         to  the  good  results  of  welfare  work.     This  com- 
Its  origin.  ° 

pany,  employing  many  skilled  and  highly  efficient 
men  and  women  in  the  manufacture  of  a  very  compHcated 
machine,  decided  that  it  would  be  advisable  to  adopt  every 
means  to  develop  their  interest  in  the  company  and  to  make 
more  efficient  workers  out  of  them.  In  order  to  carry  out 
this  design,  sanitation  was  bettered  and  factory  conditions 
were  improved  in  many  directions. 

Within  the  past  few  years,  factory  construction  has 
been  revolutionized.  The  old  style  factory  was  a  building. 
Recent  im-  The  new  Style  factory  is  a  factory,  planned  to 
provements:  serve  that  definite  purpose.  When  the  old  fac- 
in  factories.  |-Qj-jgg  ^ygj.g  built,  men  wanted  a  building  in  which 
their  employees  could  congregate  and  work.  The  progressive 
modern  manufacturer  builds  a  structure  calculated  to  fit 
the  peculiar  needs  of  his  business  and,  in  addition,  makes 


Experiments  of  the  Employer  309 

ever}'  provision  for  the  health  and  safety  of  his  employees. 
In  pursuance  of  this  idea,  he  provides  sanitary  and  comfort- 
able houses,  kindergartens,  schoolhouses,  amusement  halls, 
churches,  insurance  funds,  cooperative  stores,  and  means 
of  recreation  after  factory  hours. 

The  factory  does  not  furnish  the  only  instance  of  welfare 
work.     The    modern    department    store   is    adopting   rest 
rooms  and  improved  lavatories ;  and  providing  j^  ^^^^^^ 
schools,    reading   clubs,    inilitary   organizations,  and  rail- 
singing  societies,  and  many  other  forms  of  social  ^'^^^' 
gatherings  for  the  benefit  of  the  employees.     The  railroads, 
too,  have  done  much  good  by  providing  "bunk"  houses  for 
employees  when  they  arc  at  the  end  of  "  runs  "  and  away 
from   home.     The   men   under   such   circumstances   often 
have  no  convenient  place  to  go.     The  railroad,  by  furnish- 
ing sleeping  rooms,  amusement  rooms,  books,  and  other 
attractions,  thus  provides  for  the  material  comfort  and  wel- 
fare of  its  employees. 

Undoubtedly  the  greater  part  of  welfare  work  is  carried 
on  for  purely  business  reasons.  Employers  have  found  that 
it  pays.  Some  men,  however,  who  enjoy  very  great 
advantages,  are  able  to  carry  on  welfare  work  among 
their  employees  with  a  philanthropic  end  in  view.  But 
for  the  great  majority  of  employers  this  is  im- 
possible. The  feeling  in  favor  of  welfare  work 
is  undoubtedly  spreading  and,  whatever  one  may  think  of 
the  objects  underlying  its  establishment,  its  results  are 
certainly  advantageous  to  both  parties.  Like  profit  shar- 
ing, welfare  work  depends  upon  the  employer  for  its  initia- 
tion and  success.  But  unlike  profit  sharing,  welfare  work 
has  taken  a  strong  hold  in  the  Unitcrl  States,  and  constitutes 
one  of  the  modern  divisions  of  great  industrial  undertakings. 


3IO  Elements  of  Economics 

Its  success  rests  primarily  upon  the  fact  that  it  is  regarded, 
not  as  philanthropy,  but  as  a  means  of  increasing  efi&ciency. 

Philanthropic  Work.  —  Closely  connected  with  employers' 
experiments  in  behalf  of  labor  are  the  efforts  of  philanthro- 
pists and  social  workers  to  improve  the  condition  of  unfor- 
tunate members  of  society.  While  the  philanthropist  is 
not  necessarily  an  employer,  yet  his  fundamental  interest 
in  social  and  individual  welfare  merits  careful  consideration 
Its  prob-  in  a  study  of  the  attempts  to  better  the  condition 
lems:  ^f  |-j-^g  great  mass  of  laboring  people.     His  work 

resembles  that  of  the  employer  in  that  it  is  a  form  of  outside 
assistance  rendered  to  those  in  need  of  unusual  help.  The 
problems  of  philanthropy  are  usually  concerned  with 
(i)  the  rehef  of  poverty,  (2)  the  maintenance  of  unfortunates, 
and  (3)  the  prevention  of  distress. 

Rehef  of  poverty  is  the  ordinarily  accepted  duty  of 
pliilanthropy.  The  soup  kitchen,  the  bread  line,  the  char- 
ity society,  —  feeding  the  hungry,  clothing  the  needy,  and 
giving  aid  to  social  outcasts,  —  are  looked  upon  as  legitimate 
forms  of  philanthropic  activity.  Such  matters,  however, 
Relief  of  occupy  but  a  comparatively  small  part  of  the 
poverty.  attention  of  modern  philanthropists.  Some  im- 
mediate aid  is  given  to  the  needy,  but  the  aim  of  philan- 
thropy is  the  elimination  of  the  causes  which  produce  the 
needy.  This  kind  of  relief  is  secured  not  so  much  through 
the  almshouse  as  through  the  hospital,  the  sanitarium,  and 
similar  institutions.  The  relief  afforded  in  this 'manner  has 
been  very  great.  In  fact,  curative  work  in  hospitals  and 
sanitariums  has  become  so  extensive  and  effective  of  late 
years  that  the  ravages  of  many  diseases,  Hke  tuberculosis, 
have  been  greatly  reduced. 

Social  unfortunates  are  usually  classed  as  defectives  or  de- 


Experiments  of  the  Employer  311 

pendents.  The  problem  of  maintaining  defectives,  — feeble- 
minded, epileptics,  and  those  afflicted  with  incurable  dis- 
eases,—  is  essentially  one  of  segregation.  It  is  of  prime 
importance  that  such  persons  be  kept  away  from  their 
fellow-men.  This  is  necessary  either  to  prevent  contagion,  or 
to  stop  transmission,  or  to  prevent  the  bur-  j]^^-, , 
den  of  support  from  falling  on  those  incapable  nance  oj 
of  bearing  it.  Therefore,  philanthropy  aims  to  '*"•''"■^"'"^^^• 
pro\dde  institutions  for  the  care  of  these  persons.  Depend- 
ents, on  the  other  hand,  need  more  or  less  temporary 
support.  Usually  they  are  children  or  old  persons,  and 
therefore  their  period  of  dependence  cannot  continue  for 
any  great  length  of  time.  They  are  cared  for  either  because 
they  have  a  career  of  work  before  them  or  one  behind 
them. 

The  philanthropy  of  most  value  to  society,  however,  is 
that  which  concerns  itself  with  the  prevention  of  dependency, 
defectiveness,  and  dehnquency.  Why  is  this  family  unable 
to  live  decently?  Because  the  father  never  p^g^,^ntion 
learned  to  work  efficiently.  Then  let  society  of  distress. 
prevent  the  reappearance  of  such  a  family  by  educat- 
ing this  man's  sons  to  be  efficient  workers.  Why  is 
this  child  feeble-minded?  Because  its  ancestors  have  been 
feeble-minded  for  generations.  Then  it  is  high  time  that 
some  steps  be  taken  to  stop  the  transmission  of  such  a  defect 
in  this  family.  Here  is  a  boy  who  has  been  committed  to 
jail  for  stealing.  He  has  never  been  well  fed  ;  he  has  jjlayed 
truant  for  years ;  his  home  is  in  a  filthy  alley ;  and  he  has 
never  known  the  meaning  of  decent  living  conditions. 
Surely  some  steps  should  be  taken  to  prevent  the  recurrence 
of  such  a  disastrous  life.  Constructive  philanthropy, 
therefore,  undertakes  the  solution  of  these  problems  and, 


312  Elements  of  Economics 

by  prevention,  aims  to  secure  permanent  improvement  in 
social  conditions. 

While  these  are  the  problems  in  which  philanthropy  is 
primarily  interested,  what  are  the  means  it  employs  for 
their  effective  solution  ?  It  is  evident  that  individual  effort 
is  not  sufficient  to  accomplish  the  results  desired  by  the 
philanthropist  and  social  worker.  How  can  a  single  indi- 
vidual, even  with  fabulous  wealth,  relieve  poverty,  maintain 
unfortunates,  and  prevent  distress?  Evidently  he  must 
rely  upon  the  help  of  society.  This  help  he  secures  in  the 
Its  legisia-  form  of  social  legislation.  The  lawmaker  aids 
tive  pro-  the  social  worker  to  attain  his  ideals.  Thus 
philanthropy  attempts  to  improve  undesirable 
social  conditions  by  securing  legislation  deahng  with  (i) 
working  conditions,  (2)  living  conditions,  (3)  purity  of  food 
and  drink,  (4)  recreation,  and  (5)  education. 

In  America,  legislation  concerning  working  conditions 
has  confined  itself  largely  to  the  passage  of  laws  regulating 
the  labor  of  children,  the  hours  and  working  conditions  of 
women,  and  the  safety  of  workers.  Under  the  American 
system  of  government,  the  adult  male  worker  is  frequently 
Improved  denied  legislative  protection  on  the  ground 
working         that  hc  is  free  to  contract  as  he  pleases.     After  a 

conditions.        ■,    -,  ■,  .  -i     •  ^ 

laborer  once  chooses  to  work  in  a  dangerous  or 
unhealthful  trade,  he  takes  upon  himself  the  responsibility 
for  any  danger  that  may  attach  to  the  trade.  Certain  ex- 
ceptions, however,  have  been  made  to  this  general  rule.  For 
example,  government  work  is  generally  done  under  the  eight- 
hour  system.  Again,  the  Utah  eight-hour  law  decision 
handed  down  by  the  United  States  Supreme  Court  estab- 
lishes the  principle  that  in  the  exercise  of  the  police  power, 
under   which   the   government    protects    the   health   and 


Experiments  of  the  Employer  313 

morals  of  the  people,  the  hours  of  work  may  be  limited  in 
trades  where  long  hours  would  injure  health. 

Living  conditions  in  the  United  States  have,  in  the  past 
two  decades,  aroused  considerable  attention  among  philan- 
thropists and  social  workers.  This  is  particularly  true  of 
New  York  City,  where  sLx-  and  seven-story  tenement  houses 
create  a  congestion  problem  of  the  most  acute  type.  But, 
while  insanitary  Hving  is  primarily  a  problem  of  Better  living 
the  immigrant,  the  recent  investigations  in  (^onduiofis. 
Pittsburg  have  shown  clearly  enough  that  Americans  as  well 
as  foreigners  are  living  in  unhealthful  surroundings.  The 
most  casual  observer  of  living  conditions  in  certain  districts 
of  great  cities  must  conclude  that  efi&ciency  cannot  be  main- 
tained until  some  effective  effort  is  made  to  improve  hous- 
ing conditions.  Such  efforts  are  being  made  in  all  of  the 
larger  American  cities  and,  in  some  of  them,  with  consider- 
able efi'ect. 

The  federal  Pure  Food  and  Drugs  Act  has  put  a  very 
effective  check  upon  the  adulteration  of  food  and  drink. 
Up  to  the  time  of  the  passage  of  this  act  adulteration  had* 
been  widespread  but,  with  its  passage,  has  come  a  complete 
revolution  in  the  attitude,  not  only  of  the  public, 

'  -^  '■  Purer  diet. 

but  also  of  the  manufacturer,  toward  food  adul- 
teration.    Instead  of  trying  to  avoid  the  law,  the  progressive 
manufacturers  have  prominently  advertised  the  fact  that 
they  conform  to  all  its  provisions.     Thus  the  manufacturers 
themselves  have  made  the  law  effective. 

In  providing  means  for  play,  Chicago  leads  all  American 
cities.   Other  large  cities  have  likewise  provided  playgrounds, 
school   gardens,  parks,  and  recreation  piers,  on   More  re- 
the  supposition  that  the  juvenile  court  can  be  f^""""- 
replaced  most  effectively  by  more  recreation   facilities. 


314  Elements  of  Economics    . 

After  all,  however,  the  philanthropist  must  do  his  most 
lasting  work  along  educational  lines.  No  reform  can  be 
effective  which  is  not  based  upon  education.  Hence  the 
Practical  advocatcs  of  social  legislation  are  devoting  their 
educahon.  efforts  to  the  upbuilding  of  schools,  newspapers, 
magazines,  theaters,  and  other  agencies  which  affect  the 
pubHc  mind.  Obviously  the  most  fundamental  work  in 
this  direction  must  be  done  through  the  public  school  sys- 
tem. Great  improvements  in  social  conditions  must  neces- 
sarily follow  the  development  of  a  progressive  type  of  pubHc 
education. 

These  various  experiments  to  help  labor  and  to  improve 
social  conditions  are  ahke  in  certain  fundamental  respects. 
The  employer  sharing  his  profits  with  the  laborer ;  the  fac- 
tory owner  improving  the  conditions  under  which  men  and 
The  con-  women  work ;  and  the  philanthropist  securing 
elusion.  social  legislation  favorable  to  the  worker,  —  all 
have  the  same  end  in  view,  the  ideal  of  individual  and 
social  welfare.  There  is  also  a  general  uniformity  in  the 
character  of  the  help  extended  to  society  by  these  different 
agencies.  It  is  always  in  the  form  of  outside  assistance. 
It  springs,  not  from  labor  itself,  but  from  sources  outside 
of  labor.  There  are,  however,  various  ways  in  which  labor 
may  help  itself. 

TOPICS  FOR  CLASS  DISCUSSION 

1.  What  are  the  different  methods  of  sharing  profits  ? 

2.  Which  of  these  is  the  most  successful  ? 

3.  What  has  been  the  success  of  profit  sharing  in  the  United  States  ? 

4.  What  is  the  attitude  of  the  average  employer  toward  profit 
sharing  ? 

5.  What  attitude  does  the  public  take  toward  profit  sharing? 


Experiments  of  the  Employer  315 

6.  What  is  the  outlook  for  profit  sharing  in  the  United  States  ? 

7.  Do  you  expect  profit  sharing  to  become  general  in  the  United 
States  ? 

8.  Have  you  any  criticism  against  the  principle  of  profit  sharing  ? 

9.  What  is  welfare  work  ? 

10.  Investigate  the  systems  of  welfare  work  which  have  been 
adopted  by  local  employers.  WTiat  are  their  strong  points?  Their 
weaknesses  ? 

11.  If  you  were  managing  a  department  store,  what  welfare  meas- 
ures would  you  adopt  ? 

12.  What  future  has  welfare  work  ? 

13.  \Vhat  is  the  scope  of  philanthropic  work? 

14.  WTiat  has  philanthropy  accomplished  ? 

15.  WTiat  is  Its  future  ? 

16.  Can  you  make  any  general  observations  concerning  the  like- 
nesses of  these  experiments  of  the  employer  ?    The  differences  ? 

REFERENCES 

Labor  Problems  —  Adams  &  Sumner. 

Social  Insurance  —  H.  R.  Seager. 

Profit  Sharing  between  Employer  and  Employee  —  N.  P.  (jilman. 

Social  Forces  —  E.  T.  Devine. 

Efficient  Democracy  —  W.  H.  Allen. 


CHAPTER  XXXIX 

Experiments  of  the  Worker 

I.  Experiments  in  cooperation 

1.  Its  usual  forms  : 

a.  Cooperative  banking 
h.  Cooperative  consumption : 
(i)  Its  English  origin 

(2)  Its  American  development 

(3)  Its  advantages 

(4)  Why  it  has  failed 

c.   Cooperative  production 

2.  Outlook  for  cooperation 

II.  Modern  unionism 

1 .  Character  of  unionism  : 

a.  Its  significance 

b.  Its  national  character 

c.  Its  industrial  character 

2 .  Program  of  unionism  : 

a.  Higher  wages 

b.  Shorter  hours : 

(i)  American  conditions 

(2)  Reasons  for  shorter  hours 

c.  Better  working  conditions 

3.  Weapons  of  unionism : 

a.  The  trade  agreement 

b.  The  strike : 

(i)  Effects  on  labor 

(2)  Effects  on  employer 

(3)  Effects  on  the  public 

c.  The  boycott : 
(i)  Its  meaning 

(2)  Its  different  forms 

4.  Outlook  for  unionism 

316 


Experiments  of  the  Worker  317 

Experiments  in  Cooperation.  —  The  worker  himself  has 
made  frequent  efforts  to  improve  his  own  condition.  The 
American's  spirit  of  independence  has  manifested  itself  in 
initiating  various  experiments  for  his  own  betterment  with- 
out depending  upon  help  received  from  the  em-  its  usual 
ployer  or  from  the  pubKc.  One  attempt  in  this  forms: 
direction  has  been  in  the  form  of  cooperation.  From  this 
standpoint,  cooperation  means  the  association  of  persons 
for  the  purpose  of  joint  economic  effort.  Cooperative 
enterprises  usually  assume  one  of  three  forms,  (i)  coopera- 
tive banking,  (2)  cooperative  consumption,  and  (3)  coopera- 
tive production. 

Cooperative  banking  is  an  attempt  to  secure  certain 
financial  benefits  through  associations  of  individuals  in  the 
form  of  insurance  companies,  or  building  societies,  or  fra- 
ternal organizations.  From  the  organization  of  cooperative 
the  first  Mutual  Fire  Insurance  Association  in  ^""^'w^- 
1752,  the  growth  of  this  kind  of  cooperation  has  been  rapid 
in  the  United  States.  To-day  it  is  everywhere  preva- 
lent in  the  form  of  assurance  societies,  building  associations, 
lodges,  and  fraternal  societies.  The  chief  purpose  of  such 
latter  organizations  is,  of  course,  to  pay  certain  benefits  in 
case  of  death,  accident,  and  sickness. 

Cooperation  in  consumption  is  the  association  of  indi- 
viduals for  the  purpose  of  securing  certain  advantages  in  the 
purchase  of  goods.    The  cooperative  store  is  a  good  example 
of  this  kind  of  cooperation.      This  economic  ex-  ^oopera- 
periment  had  its  origin  in  England  among  a  few  Hve  con- 
poor  weavers  of  Rochdale,  who  contributed  to 
the  purchase  of  a  bag  of  flour.    By  this  means,  retail  quan- 
tities of  flour  were  secured  at  wholesale  prices.     From  this 
small  beginning  the  cooperative  movement  in  England  has 


3i8  Elements  of  Economics 

grown  until,  to-day,  it  numbers  its  members  by  hundreds 
of  thousands.  In  memory  of  its  originators,  the  coopera- 
tive society  in  charge  of  the  system  is  called  the  ''  Rochdale 
Pioneers." 

In  America,  however,  this  movement  of  cooperative  con- 
sumption has  never  attained  a  like  development.  The 
numerous  experiments  have  usually  failed  to  attain  any 
great  success.  For  example,  in  1845,  the  first  protective 
union  store  was  organized  in  Boston.  A  dozen  persons 
with  "  the  faith  of  God  in  their  hearts  "  purchased  a  box  of 
soap  and  half  a  box  of  tea.  From  this  small  beginning 
grew  the  New  England  Protective  Union,  which  rapidly  de- 
veloped into  a  large  organization  with  four  hundred  branches. 
However,  dissensions  crept  into  the  ranks  and,  within  a 
few  years,  the  association  was  practically  defunct.  Simi- 
larly, the  "  Sovereigns  of  Industry,"  which  hke  the  "  Pa- 
trons of  Husbandry  "  grew  to  great  proportions,  made  re- 
peated but  unsuccessful  attempts  to  adopt  the  Rochdale 
system  at  its  local  centers.  Finally,  the  "  Knights  of  La- 
bor "  took  the  field  and  declared  for  cooperative  institutions. 
However,  little  of  a  definite  character  was  actually  accom- 
pKshed,  and  the  order  decKned  without  having  greatly  ad- 
vanced the  cause  of  cooperation. 

The  advantages  of  consumers'  cooperation  are  quite 
evident.  In  the  first  place,  the  small  trader  being  elimi- 
nated, his  profits  are  deducted  from  the  price  of  commodities. 
By  wholesale  buying,  a  member  of  the  cooperating  group  is 
able  to  secure  his  goods  at  a  much  reduced  price,  or  to  share 
in  a  common  surplus  at  the  end  of  the  year.  Then,  again, 
through  a  knowledge  of  consumers'  needs,  and  through 
saving  in  advertising,  the  expenses  of  operation  are  con- 
siderably reduced.     It  is  also  apparent  that  the  stores  will 


Experiments  of  the  Worker  319 

be  managed,  not  for  profits,  but  for  the  good  of  the  com- 
munity. The  store,  in  its  turn,  is  guaranteed  a  loyal  con- 
stituency. 

In  view  of  these  advantages,  it  seems  surprising  that  con- 
sumers' cooperation  has  not  developed  more  fully  in  the 
United  States.  There  are  four  reasons,  however,  for  this 
lack  of  development.  First,  the  country  is  so  large  and  the 
interests  of  the  various  sections  so  diverse  that  it  has  not 
been  possible  to  develop  such  a  general  movement  as  that 
in  Great  Britain.  In  the  second  place,  in  the  modern  Ameri- 
can city,  retail  stores  have  been  organized  on  a  large  basis, 
and  a  great  many  of  the  petty  annoyances  and  petty  profits 
of  the  old  retail  system  have  been  ehminated.  In  the  third 
place,  in  the  retail  business  in  America,  private  business 
has  proved  to  have  advantages  in  economy  far  above  those 
possessed  by  the  cooperative  business.  Finally,  American 
producers  are  strongly  organized,  and  in  aU  probabiHty,  by 
refusing  to  sell  goods,  would  attempt  to  crush  out  all  co- 
operative undertakings. 

Cooperative  production  is  an  association  of  persons  for 
joint  production,  usually  in  the  field  of  agriculture  or  manu- 
facturing.    In    this    experiment,    the    cooperating    parties 
furnish  their  own  capital,  and  the  income  from  the  sales  of 
the  products  is  divided  among  the  cooperating  producers. 
In  America,  various  unsuccessful  attempts  have  coopera- 
been  made  in  this  direction.     For  example,  at  one  '«'''c  pro- 
time,  the  "Sovereigns  of  Industry"  had  thirty 
manufacturing  establishments  with  a  capital  of  nearly  half  a 
million  dollars.     The  "Knights  of  Labor"  also  attempted, 
usually    unsuccessfully,    to    organize    various    productive 
enterprises,  including  boot  and  shoe  companies,   clothing 
companies,    and    tobacco    factories.     On    the   other    hand. 


320  Elements  of  Economics 

experiments  in  productive  cooperation  in  creameries  have 
been  quite  successful.  All  through  agricultural  districts 
there  exist  such  creameries,  managed  advantageously  on  a 
cooperative  basis.  With  this  exception,  producers'  co- 
operation in  the  United  States  is  a  practical  failure.  The 
reason  for  this  failure  is  to  be  found  in  the  difficulty  of 
securing  capital  and  good  business  management  for  such 
productive  enterprises. 

Although  the  advocates  of  cooperation  regard  it  as  a  sure 
solution  of  many  social  problems,  there  seems  at  present  in 
the  United  States  little  real  basis  for  this  belief.  With  the 
Outlook  exception  of  cooperation  in  such  enterprises  as 
for  CO-  building  and   loan   associations,  assurance   soci- 

opera  ion.  g^-jgg^  ^^^  fraternal  organizations,  together  with  • 
the  successful  consumers'  cooperation  in  England  and  on  the 
Continent,  the  cooperative  system  has  furnished  very  Httle 
ground  for  belief  that  it  will  prove  an  immediate  rehef  or  an 
ultimate  remedy  for  the  improvement  of  the  social  condition 
of  the  worker.  If  cooperation  is  to  furnish  an  adequate 
remedy,  it  must  succeed  in  production ;  and  there  it  has 
signally  failed. 

Modern  Unionism.  —  Because  the  "  union  "  rehes  solely 
upon  itself  to  improve  labor  conditions,  it  is  the  most  dis- 
Character  tinctive  instrument  that  labor  employs  for  its 
of  unionism:  bej-tgrment.     Its  real  significance  Hes  in  the  fact 

Itssignifi-  ,         .     .      ,  .  ,.      .  , 

cance.  that  it  IS  democratic,  not  paternalistic,  and  repre- 

sents a  voluntary  association  of  equals  striving  themselves 
to  improve  their  own  condition.  While  the  union  was  origi- 
nally an  experiment  and  still  possesses  experimental  features, 
the  movement  has  grown  to  such  proportions  and  repre- 
sents such  definite  demands  that,  to-day,  modern  unionism 
is  fast  constituting  an  actual  program  for  economic  reform. 


Experiments  of  the  Worker  321 

Formerly,  unions  were  local  and  affected  only  a  particular 
trade.  To-day,  they  are  national  and  embrace  representa- 
tives of  many  trades.  In  the  attempt  to  nationahze  the 
union,  the  movement  was  first  begun  in  some  one  ns  national 
trade,  such  as  that  of  typographical  workers,  '^f"^'''^'^^^''- 
Gradually,  however,  it  extended  to  an  attempt  to  organize 
all  the  workers  of  the  country.  Thus,  in  188 1,  the  American 
Federation  of  Labor  was  established,  and  it  has  succeeded 
in  affiliating  with  it  the  majority  of  the  trade  unions  of  the 
United  States.  Its  success  in  this  great  scheme  for  the 
organization  of  labor  is  due  to  the  fact  that  it  allows  the  local 
unions  large  powers  of  control  and  requires  that  only  the 
greater  questions  be  referred  to  the  officers  of  the  Federation. 

A  union  which  was  composed  of  the  workers  of  one  trade, 
such  as  carpenters  or  bricklayers,  was  at  j^^  ^^^^^^_ 
first  called  a  "  trade  union."  Two  great  changes  trial  char- 
that  have  taken  place  in  the  last  quarter  of  the 
nineteenth  century  have,  however,  made  this  term  mis- 
representative  of  present  conditions.  In  the  first  place, 
through  division  of  labor  and  specialization  in  industry, 
trades  have  been  so  split  up  that  they  no  longer  exist  in  their 
old  forms.  A  man  is  no  longer  a  cabinetmaker,  but  a 
"  gluer,"  or  a  "  lathe  man."  Then,  again,  the  influx  of 
large  numbers  of  immigrants  and  the  growth  of  a  large  class 
of  common  labor  have  made  it  necessary  for  the  trade 
union,  if  it  would  succeed,  to  take  into  its  membership  men 
who  are  not  skilled  in  any  trade.  For  example,  the 
union  of  the  United  Mine  Workers  of  America  includes 
miners,  door  tenders,  dumpers,  laborers,  drivers,  trackmen, 
and  other  men  from  various  trades.  Thus  the  old  "  trade  " 
union  has  been  transformed  into  the  modern  "  labor  " 
union  with  a  distinctly  industrial  character. 


322  Elements  of  Economics 

At  the  present  time,  the  demands  of  unionism  are  so 
clearly  formulated  that  they  may  well  be  termed  a  definite 
Program  of  program.  The  union's  activities  are  directed 
unionism :  chiefly  toward  the  attainment  of ,  three  ends, 
(i)  higher  wages,  (2)  shorter  hours,  and  (3)  better  working 
conditions.  It  is  also  true  that  the  union  attempts  to  raise 
the  level  of  intelUgence  among  its  members  and  to  awaken 
in  them  a  realizing  sense  of  their  responsibihties.  How- 
ever, the  chief  emphasis  of  the  union  is  laid  upon  higher 
wages  and  shorter  hours  of  work. 

The  effect  of  the  organization  of  labor  upon  wages  has 
already  been  discussed  in  the  Theory  of  Wages.  It  was 
Higher  there   seen    that,    through   organizing,    labor   is 

wages.  q}j\q  iq  develop  strong  monopoly  power.     Armed 

with  this  power  of  group  monopoly,  labor  can,  through  the 
union,  make  its  demands  upon  the  employer  and,  by  secur- 
ing higher  wages,  better  its  condition.  The  union,  through 
its  monopoly  power,  is  attempting  to  secure  its  proper  share 
of  the  product  of  industry,  and  in  some  cases,  as  in  the  build- 
ing trades,  has  met  with  marked  success.  However,  in  this 
direction  the  work  of  the  union  has  only  begun. 

Equally  important  is  the  demand  of  the  union  for  shorter 
hours  of  work.  This  has  been  crystallized  into  the  eight- 
hour-a-day  slogan,  which  in  some  countries,  especially 
Shorter  AustraHa,    has    accomphshed    notable    results. 

hours.  However,  in  the  United  States  ten  hours  con- 

stitute the  average  working  day,  although  many  industries 
are  on  an  eight-hour  basis.  Saturday  half  holidays  are  the 
rule  in  most  of  the  cities  and  it  is  becoming  more  and  more 
common  to  give  short  summer  vacations.  It  is  generally 
conceded  that  the  legislatures  have  the  right  to  regulate  the 
working  hours  of  children  and  numerous  state  laws  have  been 


Experiments  of  the  Worker  323 

passed  accordingly.  In  the  case  of  women,  the  Supreme 
Court  of  the  United  States  has  recently  decided  that  the 
labor  of  women  can  be  regulated  on  the  ground  of  the  wom- 
an's physical  inferiority.  The  labor  of  men  cannot  be 
regulated  unless  it  can  be  definitely  shown  that  the  health 
and  morals  of  the  community  are  endangered  by  a  continu- 
ance of  such  labor. 

The  reasons  for  this  demand  for  shorter  hours  are  per- 
fectly ob\'ious.  In  the  first  place,  there  is  no  longer  any 
great  necessity  for  long  hours  of  hard  work.  In  former  days, 
when  Hving  was  precarious,  such  a  necessity  did  exist,  and 
the  tradition  that  life  could  not  be  maintained  without 
hard  work  gradually  grew  up.  To-day,  labor  is  struggling 
to  break  down  this  tradition.  Again,  with  a  proper  amount 
of  leisure,  it  is  possible  to  do  much  more  efficient  work. 
Shorter  hours  mean  higher  efficiency.  Finally,  the  wide 
use  of  machinery  in  industry  has  not  only  made  the  output 
greater,  but  has  also  caused  labor  to  become  more  monoto- 
nous and  nerve-racking.  As  a  relief  from  this  monotony 
and  strain,  labor  must  be  given  more  time  for  leisure  and 
recreation. 

While  higher  wages  and  shorter  hours  result  in  immediate 
advantages  to  labor,  it  is  also  important  that  the  general 
conditions  under  which  labor  works  should  be  improved. 
For  this  reason,  the  union  makes  every  attempt  to  better 
the  working  conditions  and  the  surroundings  of  ^^^^^^  ^^^^^ 
labor.  Through  the  efforts  ot  the  union,  aided  «"s  condi- 
by  philanthropists  and  social  workers,  legisla- 
tures have  enacted  many  laws  against  child  labor,  sweat- 
shops, and  other  industrial  abuses.  This  legislation  has 
proved  of  benefit,  not  only  to  labor,  but  also  to  the  whole 
community.     While,  therefore,  the  main  object  of   union- 


324  Elements  of  Economics 

ism  has  been  to  improve  the  working  conditions  of  members 
of  its  own  group,  its  benefits  have  frequently  been  enjoyed 
by  labor  in  general. 

What  means,  now,  does  the  union  employ  to  carry  out 
this  program  of  higher  wages,  shorter  hours,  and  better 
Weapons  of  Working  conditions?  As  a  rule,  there  are  three 
unionism :  well-defined  instruments  in  the  hands  of  organ- 
ized labor  which  it  may  use  to  accomplish  its  purpose,  — 
(i)  the  trade  agreement,  (2)  the  strike,  and  (3)  the  boycott. 
These  constitute  a  trio  of  powerful  weapons. 

The  trade  agreement,  as  the  name  signifies,  is  simply  an 
agreement  in  a  given  trade  or  group  of  alHed  trades  between 
the  employer  and  the  workers.  The  employer  on  his  side 
The  trade  makcs  a  bargain  with  a  committee  representing 
agreement.  ^j^g  workmcn  ou  their  side.  The  trade  agree- 
ment is  thus  a  collective  bargain,  and  the  great  majority  of 
industries  in  which  unions  exist  are  conducted  under  such 
collective  bargaining.  Of  course,  the  success  and  effec- 
tiveness of  this  agreement  depend  largely  on  a  soHd  body  of 
union  workers.  For  this  reason,  the  union  naturally  de- 
sires a  "  closed  shop,"  that  is,  an  estabhshment  in  which 
only  organized  labor  is  employed.  On  the  other  hand,  the 
employer  may  desire  to  be  free  in  his  choice  of  labor. 

When  unavoidable  friction  occurs  between  the  employer 
and  the  workers  concerning  the  terms  of  a  trade  agreement, 
or  some  equally  important  matter,  the  union  attempts  to 
enforce  its  demand  by  means  of  the  strike.  The  strike  is  an 
organized  cessation  of  work  initiated  by  the  employees  for 
the  purpose  of  securing  their  terms,  or  of  resisting  those 
of  the  employer.  It  is  a  revolutionary  measure 
and  can  be  justified  only  by  some  most  unusual 
condition  of  affairs.     Because  of  its  deep  and  widespread 


Experiments  of  the  Worker  325 

consequences,  this  weapon  should  never  be  employed  by  the 
union  except  as  an  absolutely  final  resort  to  secure  just 
demands. 

The  effects  of  the  strike  are  threefold.  In  the  first  place 
it  affects  the  worker.  By  means  of  it,  he  may  be  able  to 
force  the  employer  to  grant  higher  wages,  or  shorter  hours, 
or  better  working  conditions.  On  the  other  hand,  the 
strike  may  prove  a  calamity  to  the  average  worker.  Wages 
stop  at  once  and,  while  union  men  may  be  supplied  with 
strike  benefits,  these  are  often  inadequate  to  meet  the  de- 
mands of  family  Ufe.  Then,  again,  when  work  is  resumed, 
oftentimes  the  leaders  of  a  strike,  and  sometimes  the  strikers 
themselves,  are  not  reinstated  by  the  employer.  If  these 
men  Uve  in  a  small  town,  depending  upon  one  or  two  indus- 
tries, their  position  becomes  quite  precarious.  Altogether, 
the  strike  offers  to  labor  a  very  uncertain  remedy. 

To  the  employer,  the  strike  involves  serious  consequences. 
Of  course,  it  is  true  that  should  he  win  the  strike  he  would 
secure  more  absolute  control  over  his  business  and  be  able 
to  decrease  wages,  lengthen  hours,  and  impose  his  own  work- 
ing conditions.  On  the  other  hand,  the  enforced  idleness  of 
his  plant  entails  great  financial  loss.  In  addition  to  this, 
much  property  is  destroyed  by  violence.  Again,  if  he 
loses  the  strike,  the  extra  expense  entailed  })y  increased  wages 
seriously  handicaps  the  employer  in  renewing  his  business 
operations.  For  all  these  reasons,  the  employer  is  opposed 
to  strikes. 

Finally,  strikes  seriously  affect  the  public;  and,  because 
of  this  fact,  it  is  generally  agreed  that  the  jiulih'c  should  be 
the  final  arbiter  of  disi^utcs  between  labor  and  caj^ital.  A 
strike  curtails  production.  The  j)ubh*c,  therefore,  will  have 
less  to  consume  during  the  ensuing  period.     Then,  too,  as 


326  Elements  of  Economics 

in  the  case  of  the  great  Anthracite  Coal  Strike,  a  strike  is 
often  followed  by  an  increase  in  prices  which  falls  heavily 
upon  the  public.  The  strike  also  seriously  menaces  social 
welfare  through  destruction  of  property  and  violation  of 
law. 

In  addition  to  the  trade  agreement  and  the  strike,  the 
union  possesses  still  another  weapon  —  the  boycott.  This 
The  boy-  IS  simply  an  organized  refusal  on  the  part  of  a 
cott.  group  of  persons  to  buy  goods  from  another  per- 

son or  group  of  persons.  It  may  be  used  by  opposing  busi- 
ness houses,  but  it  is  chiefly  the  weapon  of  the  worker  and 
of  the  public. 

The  boycott  has  four  forms.  In  the  simple  boycott,  a 
group  of  persons,  who  have  been  working  for  a  certain 
employer,  refuse  to  buy  his  products.  In  the  compound 
boycott,  the  workmen  directly  interested  in  injuring  the 
boycotted  person  enlist  the  cooperation  of  outside  parties. 
This  form  of  boycott  is  regarded  as  a  conspiracy.  The  third 
form  of  boycott  is  negative  in  character  and  is  known  as  the 
"  fair  list,"  or  "  white  list."  In  the  first  case,  the  union 
periodical  pubHshes  a  list  of  firms  described  as  "  fair  " 
because  they  work  under  union  hours,  pay  union  wages, 
and  employ  union  men.  In  the  second  case,  the  Con- 
sumers' League  pubhshes  a  list  of  firms  described  as  "  white" 
because  they  do  not  violate  factory  laws  or  other  rules  agreed 
upon.  The  fourth  form  of  boycott  is  the  "  unfair  list,"  or, 
as  it  has  been  called,  the  *'  we  don't  patronize  "  list.  In  this 
case,  the  labor  periodical  actually  publishes  the  names  of 
firms  that  do  not  provide  fair  conditions  for  their  employees 
and  thus  urges  the  pubHc  not  to  purchase  their  goods.  The 
court  has,  in  certain  cases,  prohibited  the  use  of  this  form 
of  boycott. 


Experiments  of  the  Worker  327 

Armed  with  the  strike  and  the  boycott,  and  using  the 
collective  bargain  to  secure  its  end,  modern  unionism  has 
made  valiant  attempts  to  raise  wages  and  to  bring  about 
better  working  conditions.  The  success  attending  both 
these  efforts  has  been  widespread.  However,  because  of  the 
rise  in  prices,  the  advance  in  wages  has  been  more  apparent 
than  real.  On  the  other  hand,  an  actual  and  permanent  gain 
in  the  form  of  shorter  hours  and  improved  working  conditions 
has  resulted  from  union  activities.  But,  while  the  results 
accomphshed  by  unionism  have  been  great  and  its  outlook 
is  generally  favorable,  yet  the  movement  to-day  is  facing 
some  serious  problems.  The  use  of  the  injunction  and  the 
recent  restriction  of  the  boycott  handicap  the  union  in  its 
attempts  to  better  working  conditions.  At  the  Outlook  for 
same  time  the  growth  of  employers'  associations  "Zionism, 
on  a  national  scale  serves  to  weaken  the  union's  power. 
When  the  unions  organized  on  a  national  basis,  the  employ- 
ers did  hkewise.  Thus,  the  American  Federation  of  Labor 
now  faces  the  National  Association  of  Manufacturers.  So 
long  as  the  union  alone  was  organized  on  a  national  basis 
its  power  was  almost  unhmitcd.  But,  to-day,  as  a  result 
of  this  national  organization  of  employers,  the  union  has 
lost  some  of  its  monopoly  power.  However,  since  both 
sides  of  an  industrial  controversy  will  now  be  obliged  to  rely 
more  closely  upon  public  support  for  final  success,  the  ulti- 
mate effect  of  the  power  of  the  public  may  redound  to 
labor's  advantage. 

TOPICS  FOR   CL.\SS  DISCUSSION 

1.  What  is  consumers'  cooperation? 

2.  WTiat  arc  the  reasons  for  its  success  in  EnRhind  ? 

3.  WTiat  are  the  reasons  for  its  failure  in  the  United  States? 

4.  What  is  producers'  cooperation? 


328  Elements  of  Economics 

5.  ^\'hy  has  producers'  cooperation  generally  failed  ? 

6.  What  is  the  strength  of  the  cooperative  program  ?     What  is  its 
weakness  ? 

7.  What  steps  would  be  necessary  before  cooperation  could  be 
generally  established  in  the  United  States  ? 

8.  What  economic  forces  led  to    cooperation   among  American 
farmers  ? 

9.  WTiat  has  forced  retail  grocers  into  a  kind  of  cooperation  ? 

10.  Explain  the  value  of  the  collective  bargain  to  the  labor  union. 

11.  How  much  justice  is  there  behind  the  collective  bargain  ? 

12.  What  is  the  economic  basis  for  the  eight-hour  day  ? 

13.  Is  the  eight-hour  demand  any  more  reasonable  now  than  it  was  a 
hundred  years  ago  ? 

14.  WTiat  is  the  effect  of  an  eight-hour  day  on  the  quality  and 
quantity  of  the  output  ? 

15.  What  is  the  effect  of  pace  setting  on  the  product  ? 

16.  WTiy  do  men  strike  ? 

17.  Is  the  "strike"  spirit  a  good  one  for  the  community  ? 

18.  Can  the  "strike"  spirit  be  eliminated? 

ig.  On  what  grounds  can  the  strike  be  justified  ? 

20.  What  is  a  boycott  ? 

21.  Give  some  examples  of  boycotts. 

22.  Is  the  "  boycott "  spirit  a  good  one  ? 

23.  If  you  were  a  wageworker,  would  you  feel  that  your  interests  and 
those  of  your  employer  were  essentially  opposed  ? 

24.  Under  what  circumstances  might  trade  unions  be  of  distinct 
advantage  to  employers  ? 

25.  Should  union  activity  be  permitted  to  interfere  with  industry  ? 

26.  What  is  the  significance  of  the  entrance  of  the  union  into 
politics  ? 

27.  What  would  be  the  ideal  outcome  of  the  union  movement  in 
America  ? 

REFERENCES 

Labor  Problems  —  Adams  &  Sumner. 
Organized  Labor  —  J.  ^Mitchell. 
Labor  Movement  in  America  —  R.  T.  Ely. 
Industrial  Democracy  —  S.  and  B.  Webb. 
History  of  Cooperation — G.  J.  Holyoake. 


CHAPTER  XL 

The  Program  of  Regulation 

I.  Development  of  regulation 

1 .  The  individualistic  attitude 

2.  The  social  attitude : 

a.  Necessity  for  regulation 

b.  The  present  test 

c.  The  government's  duty 

II.  Regulation  through  poHce  power 

1 .  Its  meaning 

2.  Its  application : 

a.  Hours  of  work 

b.  Sanitation : 

(i)  Of  factories 
(2)  Of  houses 

III.  Regulation  of  prices 

1.  Principle  of  "  cost  price  "  • 

a.  Its  meaning 

b.  Its  requisite 

2.  Examples  of  regulation: 

a.  Control  of  labor 

b.  Revision  of  tariff 

c.  Control  of  capital 

3.  Outlook  for  regulation 

Development  of  Regulation.  —  The  western  world  of  the 
late  eighteenth  and  curly  nineteenth  centuries  was  domi- 
nated by  the  idea  of  individual  freedom.  In  philosophy, 
legislation,  industry,  religion  —  everywhere  —  ^j^^  jndivid- 
the  spirit  of  democracy  had  taken  hold  upon  the  uaiistic 

I  T-u-        I  u  attitude. 

people.      I  his  democracy,   however,   was  essen- 
tially different  from  democracy  as  it  is  thought  of  al   the 

329 


330  Elements  of  Economics 

present  time.  The  individual  then,  as  now,  was  the  fac- 
tor of  primary  interest  in  social  progress.  Yet  individual 
welfare,  according  to  the  view  prevailing  at  that  time,  was 
to  be  secured  through  individual  freedom.  The  pohcy  of 
laissez  faire,  or  "  let  alone,"  was  rigorously  enforced  so  that 
any  activity  of  the  individual  was  justified  provided  it  did 
not  interfere  too  seriously  with  the  welfare  of  the  remaining 
members  of  society. 

The  opening  years  of  the  twentieth  century  still  reveal  the 
presence  of  the  spirit  of  democracy,  yet  in  an  essentially 
different  form.  The  eighteenth  and  nineteenth  century 
The  social  democracy  commanded  the  government  to  leave 
attitude:  ^j^g  individual  free  to  do  as  he  pleased.  But 
for  reguia-  morc  than  a  hundred  years  of  this  individual  free- 
tion.  (;[om  have  shown,  to  the  satisfaction  of  the  great 

majority,  that  the  eighteenth  century  laissez-faire  philos- 
ophy often  results  in  much  evil.  Society  is  not  always 
justified  in  letting  the  individual  take  his  course ;  because, 
if  an  individual  has  anti-social  ideas  and  is  left  free  to  do  as 
he  pleases,  society  must  suffer  from  his  unrestricted  free- 
dom. The  industrial  monopolist  believes  that  he  should 
be  "  let  alone,"  but  from  this  point  of  view  society  does  not 
agree  with  him.  He  is  dependent  upon  society  for  his 
power  and,  hke  any  trustee,  must  give  an  account  of  his 
stewardship. 

Thus,  at  the  beginning  of  the  twentieth  century,  men  are 

measuring  proposed  actions  by  the  test  of  social  welfare. 

The  question  which  is  raised  is  no  longer  one  of  individual 

initiative  but  of  social  justice.     Does  a  man  wish 

The  test.  .  .... 

to  engage  in  certain  activities?  What  will  be 
the  effect  of  his  act  upon  society  ?  If  it  be  socially  harmful, 
then  the  act  itself  should  be  forbidden. 


The  Program  of  Regulation  331 

Under  this  spirit  of  social  control  the  program  of  govern- 
ment regulation  has  developed  with  surprising    rapidity. 
Jefferson,  one  hundred  years  ago,  said,  "  That  government 
is  best  which  governs  least."     Now,  however,  Go^er«- 
it  is  regarded  as  government's  duty  to  regulate  mcnt's 
the  Hmits  beyond  which  the  individual  may  not 
pass  and  remain  free  from  social  punishment.     Proceeding 
on  this  principle,  society  regulates  rates,  inspects  factories, 
requires  fire  escapes,  and  in  various  other  directions  controls 
freedom  of  individual  action. 

Regulation  through  Police  Power.  —  The  first  attempts  at 
general  regulation  by  the  government  were  made  through 
its  "  police  power."  By  police  power  is  meant  the  author- 
ity to  regulate  individual  action  for  the  general  good.  Of 
course,    government   must   protect   its   citizens.  ^^ 

*     ^  ^  Its  meaning. 

Men  should  not  be  wantonly  murdered ;  prop- 
erty should  not  be  unjustly  appropriated ;  the  pubhc  peace 
should  not  be  unnecessarily  disturbed.  The  activities  of 
government  in  these  directions  arc,  therefore,  included  under 
its  police  power.  But  government  may  also  exercise  this 
power  to  protect,  not  only  the  safety,  but  also  the  health 
and  morals  of  .society. 

In  pursuance  of  this  legal  doctrine,  the  work  of  women  and 
children  has  been  so  regulated  that  their  health  and  safety 
are  conserved.     For  example,  it  is  unlawful  to  employ  chil- 
dren below  a  certain  age  in  a  factory  because  social  welfare 
demands  that  children  shall  have  a  minimum  of  its  appUca- 
education  before    taking  up    the  ta.sks  of  life.    ^^  ^^^^'^  ^^ 
Women,  too,  are  forbidden  to  work  more  than  a  work. 
certain  number  of  hours  per  week  ;  and  emi)l()ycrs  are  com- 
pelled to  provide  specified  sanitary  conveniences,  because 
the  courts  have  ruled  that  the  health  and  safety  of  society 


332  Elements  of  Economics 

depend  upon  these  regulations.  Thus  far  the  poKce  power 
has  been  appHed  in  very  minor  forms  to  the  activities  of  men, 
because  men  are  presumed  under  the  law  to  be  free  contrac- 
tual agents  and,  as  such,  are  responsible  for  the  consequences 
of  their  acts. 

In  recent  years,  the  poHce  power  has  been  widely  exer- 
cised in  the  regulation  of  sanitation.     It  is  but  a  generation 
since  houses  and  factories  were  constructed  in  any  way  that 
would    suit    the    convenience    or   whim    of    the 

Sanitation.       ,      .,  ,  -r-,  .         .^       .  .       ,.  ,  .   , 

builder.  Recent  scientmc  investigations,  which 
have  made  known  the  effects  of  bad  air  and  lack  of  necessary 
sanitary  conveniences  upon  workers  in  factories,  led  to  fac- 
tory legislation  aimed  directly  at  the  evil  of  insanitation. 
While  these  measures  have  not  in  all  cases  been  enforced, 
they  exist  on  the  statute  books  as  an  indication  of  legisla- 
tive opinion  on  the  subject  of  pubHc  health. 

No  less  effective  have  been  the  efforts  to  regulate  the  sani- 
tation of  houses.  Until  recently  it  was  generally  beheved 
that  a  man's  house  was  his  castle ;  that  men  had  a  right  to 
privacy  and  freedom  at  home ;  and  that  the  conditions  there 
surrounding  their  hves  were  a  matter  of  indifference  to  the 
pubhc  at  large.  Diseases  spread,  however,  and  diseases  are 
bred  in  filthy  houses  and  courts.  In  a  densely  settled  neigh- 
borhood, it  is  a  matter  of  much  more  than  individual  con- 
cern that  a  man  has  smallpox.  Therefore,  particularly  in 
Europe,  many  efforts,  in  the  form  of  city  planning,  have  been 
made  to  improve  hving  conditions.  The  size,  air  space, 
sanitation,  and  construction  of  houses  are  all  subject  to 
stringent  regulation  because  of  the  generally  recognized 
connection  between  such  regulation  and  social  welfare. 

Regulation  of  Prices.  —  Another  form  of  government 
regulation  is  the  attempt,  championed  by  Professor  J.  B. 


-J 


The  Program  of  Regulation  333 

Clark,  to  secure  "  cost  prices."  A  "  cost  price  "  is  a  price 
equivalent  to  the  cost  of  production,  plus  a  reasonable  profit. 
Therefore,  according  to  this  view,  in  the  fixing  of  ..  cost 
cost  price  no  element  of  monopoly  or  special  P"ce " : 
privilege  should  enter.  Cost  prices,  Professor  ^  '»«<^'»«5- 
Clark  maintains,  are  just  prices.  Accordingly,  social  jus- 
tice demands  that  the  consumer  be  given  the  benefit  of 
modern  discovery  and  inventions  so  that,  when  a  device  is 
perfected  which  lowers  the  cost  of  production,  the  price  of 
the  commodity  in  question  should  be  proportionately  re- 
duced. 

Cost  prices  depend,  of  course,  upon  free  competition. 
But  we  have  seen  that,  as  a  matter  of  fact,  prices  are,  to-day, 
often  determined  by  monopoly  power.  Therefore,  these  two 
forces  —  competition  and  monopoly  —  come  into  conflict. 
Both  cannot  exist  at  the  same  time.  Conse-  its  requi- 
quently  if  competition  is  to  be  restored  and  "^^' 
cost  prices  estabhshed,  monopoly  power  must  be  regulated. 
That  is  to  say,  whenever  monopoly  attempts  to  fix  prices, 
the  government  must  interfere  and  reestablish  competi- 
tion. The  regulation  of  monopoly  power  thus  becomes 
a  requisite  to  the  principle  of  cost  price. 

Proceeding  on  this  basis,   the  adherents  of  this  school 
desire  to  regulate  all  forms  of  monopoly  so  that  cost  prices 
may  be  assured.     If,  for  example,  labor,  through  its  mo- 
nopoly power  of  organization,  fixes  too  high  a  q"™^'" 
price  for  its  services,  it  must  be  subjected  to  t'o": 
government  regulation.     No  exception  is  to  be  labor." 
made  in  its  favor.     When  the  union  uses  its  weapons  so 
effectively  that  it  develops  into  a  monopoly  organization, 
it  destroys  that  free  competition  upon  which  the  adherents 
of  this  school  believe  the  price  of  labor  should  depend. 


334  Elements  of  Economics 

The  program  of  regulation,  therefore,  includes  labor  within 
its  sphere  of  activity.  It  may  readily  be  seen  that  this 
program  is  directly  opposed  to  the  teachings  of  those  who 
advocate  the  development  of  monopoly  power  on  the  part 
of  labor. 

In  the  same  way,  the  manufacturer  must  not  be  allowed 
to  profit  by  monopoly  power.  Whenever  an  unfair  advan- 
Revision  uf  tagc  has  been  given  him  by  reason  of  undue  pro- 
lanff.  tection  against  foreign  competition,  the  govern- 

ment must  revise  its  former  act.  There  is  httle  doubt  that 
prices  are  artificially  raised  by  means  of  monopoly  power 
given  to  the  manufacturer  through  protective  legisla- 
tion. These  prices  are  certainly  not  cost  prices.  There- 
fore, to  restore  the  latter,  the  government  must  revise 
tariff  acts  and  regulate  the  business  of  the  manufacturer. 

Tliis  principle  of  government  regulation  has,  however,  as 
we  have  already  seen,  been  chiefly  appHed  to  the  control 
of  great  combinations  of  capital  in  the  form  of  trusts  and 
Control  of  railroads.  Enough  has  been  said  in  previous 
capital.  chapters  to  indicate  the  character  of  these  laws, 

and  their  desired  effects.  It  is  only  necessary  at  this  point 
to  call  attention  to  the  fact  that  they  are  the  most  represent- 
ative American  attempt  to  apply  the  program  of  govern- 
ment regulation  to  the  affairs  of  society.  Whether  this 
program  is  completely  practicable  will,  in  large  measure,  be 
determined  by  the  ultimate  effect  of  railroad  and  trust  legis- 
lation. Thus  far,  both  groups  of  legislation  are  in  a  forma- 
tive stage,  and  the  future  is  still  in  doubt. 

The  program  of  government  regulation  is  likely  to  succeed, 
(i)  if  competition  can  be  maintained,  and  (2)  if  the  depart- 
ments of  government  represent  the  welfare  of  the  majority 
of  the  people.     According  to  the  doctrine   laid  down  by 


The  Program  of  Regulation  335 

the  government  regulationists,  competition  is  absolutely  nec- 
essary to  the  success  of  their  program.  But  it  is  questionable, 
in  the  face  of  such  great  monopoly  power  grow-  outiook  for 
ing  everywhere  around  us,  whether  the  old  con-  regulation, 
ditions  of  free  competition  can  ever  be  restored.  In  fact, 
it  is  doubtful  whether  the  principle  of  free  competition  is 
of  more  ultimate  good  to  society  than  the  development  of 
monopoly  power  and  a  spirit  of  cooperation.  However, 
both  great  political  parties  in  this  country  stand  for  some 
form  of  government  regulation.  If  these  parties  really 
represent  the  majority  interests  of  their  constituencies, 
the}'  will,  when  in  power,  carry  out  this  program  in  their 
behalf.  In  many  instances,  however,  signs  have  not  been 
wanting  that  special  interests  have  influenced  regulative 
legislation. 

TOPICS   FOR   CLASS  DISCUSSION 

1.  What  is  the  attitude  of  an  advocate  of  government  regulation 
toward  competition  ? 

2.  Is  there  any  rule  for  determining  the  limits  of  State  interference  ? 

3.  What  is  the  police  power  ? 

4.  In  what  way  docs  its  exercise  justify  government  regulation  of 
industry  ? 

5.  Explain  carefully  under  what  circumstances  a  legal  eight-hour 
day  might  be  justified  under  the  police  power. 

6.  What  is  a  "cost"  price? 

7.  Is  a  cost  price  necessarily  a  just  price  ? 

8.  What  is  the  attitude  of  the  government  regulationist  toward  a 
tariff  on  wool  ?     On  antiques  ? 

9.  What  control  would  the  governmental  regulationists  exercise 
over  capital  ? 

10.  Would  an  advocate  of  this  program  have  the  State  fix  rents? 

1 1 .  What  is  the  view  of  the  advocates  of  this  program  on  the  subject 
of  the  "economies  of  combination"? 


336  Elements  of  Economics 

12.  What  is  the  attitude  of  an  advocate  of  government  regulation  on 
the  question  of  socialism  ? 

13.  What  is  the  attitude  of  the  adherents  of  this  program  toward 
monopoly  ? 

REFERENCES 

The  Distribution  of  Wealth  —J.  B.  Clark. 
The  Control  of  Trusts  — J.  B.  Clark. 
The  Trust  Problem  — J.  W.  Jenks. 
Monopolies  and  Trusts  —  R.  T.  Ely. 
Labor  Problems  —  Adams  and  Sumner. 


CHAPTER  XLI 
Programs  of  Socialization 

I.  The  Single  Tax 

1.  Its  object 

2.  Its  meaning 

3.  Its  advantages  : 

a.  Prevents  land  speculation 
h.  Simplifies  taxation 

c.  Increases  production 

d.  Relieves  poverty 

4.  Basis  of  its  position  : 

a.  Land  different  from  property 

b.  Land  values  social  values 

5.  Its  outlook 

II.  State  Socialism 

1.  Its  distinctive  character 

2.  Its  growing  importance 

3.  Its  chief  criticisms  of  society  : 

a.  Exploitation  of  labor 

b.  Growth  of  private  monopoly 

c.  Lack  of  equal  opportunity 

d.  Waste  of  effort 

e.  Evils  of  competition 

4.  Its  leading  principles  : 

a.  Government  ownership  advocated : 
(i)  Its  advantages 

(2)  Its  expected  results 

b.  Private  j)roj)crty  opjxjscd  : 
(i)  Extent  of' opposition 

(2)  Position  of  "  capital  goods  " 

5.  Its  limitations 

6.  Its  future 

z  337 


338  Elements  of  Economics 

Two  other  programs  of  economic  reform  depend  for  their 
success  upon  the  action  and  support  of  government.  Both 
of  these  may  be  described  as  programs  of  socialization.  In 
the  one,  the  aid  of  government  is  invoked  in  order  that  so- 
ciety as  a  whole,  rather  than  particular  individuals,  may 
enjoy  the  benefits  of  the  increased  valuation  of  land  resulting 
from  social  action.  In  the  other,  government  is  relied  upon 
to  bring  about  not  only  a  socialization  of  land,  —  natural 
resources.  —  but  also  of  capital,  — -  the  tools  of  production. 
The  one  is  usually  known  as  the  Single  Tax  Theory;  the 
other  as  State  Socialism. 

The  Single  Tax.  —  In  his  ''  Progress  and  Poverty,"  Henry 
George  asks  this  question,  ''  Why  in  spite  of  the  increase  in 
productive  power  do  wages  tend  to  a  minimum  which  will 
give  but  a  bare  living?  "  Starting  out  with  this  query, 
George  explains  the  coexistence  of  progress  and  poverty 
on  the  ground  that  the  landlord  class  has  appropriated 
as  rent  a  great  mass  of  wealth  that  should  go  to  labor  as 
wages,  or  to  society  as  social  income.     He  shows  that  the 

great  increase  in  land  values  due  to  the  growth  of 
Its  object.  .        ,  . 

population  (as  evidenced  by  the  fact  that  Man- 
hattan Island  alone  in  three  hundred  years  increased  in  value 
one  hundred  million  times)  has  gone,  not  to  the  people  who 
created  it,  but  has  been  appropriated  by  a  few  landlords  in 
the  form  of  an  "  unearned  increment."  Therefore,  to  re- 
store this  "  unearned  increment  "  to  society  and  thus 
to  do  away  with  the  poverty  of  the  masses,  Henry  George 
proposed  what  is  now  universally  known  as  the  Single 
Tax. 

The  Single  Tax,  to  use  Henry  George's  own  words,  is 
"  One  single  tax  levied  on  the  value  of  land  irrespective 
of  the  value  of  improvements  in  or  on  it."     All  machinery 


Programs  of  Socialization  339 

of  taxation  would  be  done  away  with  except  that  necessary 
to  assess  and  tax  land  values.  Hence  the  name  "  Single 
Tax."  Now  it  must  be  distinctly  borne  in  mind  that  this 
Single  Tax  means  a  tax  on  land  itself, — not  on  any  , 

°  .      Its  meaning. 

of    its  buildings  or  improvements.     The  tax  is 
aimed  solely  at  land  values,  and  is  thus  an  attempt  to  so- 
ciaHze  the  value  of  the  land  by  turning  over  to  the  people 
the  "  unearned  increment." 

The  advantages  claimed  for  the  Single  Tax  are,  first,  that 
while  it  would  be  so  high  as  to  cover  the  full  value  of  the  bare 
land,  it  would  not  apply  at  all  to  the  value  of  improvements 
upon  land.     Since   these  improvements  would  remain  un- 
taxed, there  would  be  every  inducement  to  make  improve- 
ments.    At  the  same  time,  since  land  itself  would  be  taxed 
to  its  full  value,  there  would  be  no  inducement  for  its  advan- 
land  speculation.     Nothing  whatever  would  be  p^^j^^,',^^ 
gained  by  holding  idle  land.     In  this  manner,  speculation. 
while  every  encouragement  ^vould  be  offered  land  improve- 
ment, an  effective  blow  would  be  given  to  land  speculation. 
Our  present  system  of  taxation  encourages  land  speculation 
by  taxing  unimproved  land  at  a  lower  rate  than  improved 
land. 

Another  advantage  of  the  Single  Tax  is  its  simplifying 
effect  upon  the  mechanism  of  taxation.  The  present  land 
tax  would  be  retained,  but  the  intricate  system  of  simplifies 
internal  revenue  and  tariff  collection  would  be  '<^'^<^'*on- 
aboUshed,  and  a  great  saving  in  the  collection  of  taxes  thus 
effected.  Furthermore,  there  would  be  no  chance  to  escape 
land  taxation.  Personal  property  may  be  concealed.  Land, 
however,  cannot  be  hidden  from  the  assessor. 

The    Single    Tax    would    also    increase    the    productive 
capacity  of  the  community.     This  is  true  because  the  aboli- 


340  Elements  of  Economics 

tion  of  taxes  on  industry  (and  the  substitution  of  the  Single 
Increases  Tax  in  their  place)  would  free  the  active  elements 
production,  j^  productiou,  —  labor  and  capital.  At  the 
same  time,  this  substitution  would  bring  into  use  more  land 
than  is  now  available  for  productive  purposes. 

Finally,  the  Single  Tax  would  reheve  poverty  by  taking 
the  "  unearned  increment  "  from  the  landlord  and  giving  it 
Relieves  to  society.  Then,  since  the  Single  Tax  would 
poverty.  f^^  j^Qg^  hea\dly  on  the  cities  where  land  values 
are  greatest,  the  poorer  agricultural  districts  could  be  re- 
lieved from  the  heavy  burden  of  taxation. 

The  advocates  of  the  Single  Tax  argue,  moreover,  that  it  is 
just,  because  land  is  not  Hke  ordinary  private  property.  As 
the  earth  was  not  made  by  man,  but  merely  suppHes  a  tem- 
its  basis :  porar-y  dwelHng  place  for  generation  after  genera- 
Land  difer-    ^:^       ^j^g  ^^^  -^^^^^  jj^j-q  |-]^g  world  have  an  equal 

ent  from  ,  . 

property.  right  to  the  free  gifts  of  nature.  Therefore, 
the  natural  resources  of  a  nation  should  be  used  for  the 
benefit  of  the  entire  nation,  and  this  condition  of  affairs 
can  only  be  brought  about  by  shifting  the  burden  of  taxa- 
tion from  the  majority  who  do  not  hold  land  to  the  minority 
who  do.  Single  Taxers  believe  that  a  tax  laid  on  tools  or 
any  other  creation  of  human  labor  \dolates  a  right  of  prop- 
erty, because  it  takes  from  the  man  who  has  created  it  part 
of  the  thing  which  he  has  made.  The  tax  on  land  values, 
however,  takes  from  individuals  nothing  that  they  have 
actually  created. 

Again,  the  value  of  land  is  not  due  to  the  work  of  man  and 
r    ,  therefore  its  value  bears  no  relation  to  actual 

Land  .    i     •  j  • 

values  social  individual  effort.  The  value  which  is  created  m 
values.  ^^^  j^^^  ^g  ^j^g  j.gg^j^  q£  ^Yit  centraHzation  of 

business  in  New  York  City  is  appropriated  by  a  few  indi- 


Programs  of  Socialization  341 

vidual  land  owners.  This,  maintain  the  Single  Taxers,  is 
manifestly  unfair  because  they  did  not  create  the  value  of 
Manhattan  Island  nor  are  they  responsible  for  increasing 
it.  This  socially  created  value  should  be  used  for  the 
purpose  of  developing  certain  community  interests.  With 
these  properly  secured  and  safeguarded,  poverty  would  be 
at  a  minimum  by  reason  of  a  more  equal  distribution  of 
the  wealth  of  society. 

Whether  the  amount  derived  from  a  land  tax  alone  would 
be  sufficient  to  meet  all  of  the  expenses  of  government  is 
still  a  matter  of  legitimate  dispute.  That  the  Single  Tax 
would  abolish  poverty  or  establish  complete  democracy  is 
certainly  improbable.  The  present  system  of  taxation  is 
unquestionably  imperfect.  Thus  the  Single  Tax  would 
doubtless  prove  a  remedy  for  some  of  the  chief  its  out- 
defects  of  the  present  system.  That  it  would  *°°^- 
prove  a  cure-all  for  social  ills  no  thinking  person  can  believe. 
The  Single  Tax  principle  has  been  applied  in  New  Zealand, 
Vancouver,  and  in  a  somewhat  modified  form  in  England 
and  parts  of  Germany.  As  a  program,  it  has  never  been 
afforded  an  opportunity  to  demonstrate  its  effectiveness. 
However,  present  indications  point  to  a  time  in  the  very  near 
future  when  some  of  our  Western  States,  as  well  as  several 
of  the  more  progressive  European  countries,  will  be  seriously 
remodeling  their  taxing  systems  on  the  basis  of  the  Single 
Tax  theory. 

State  Socialism.  —  While  the  Single  Taxers  hold  to  the 
socialization  of  natural    resources    as    a    means  jjs  distinc 
of  securing  social   progress,    another   school   of  *'ve  •■har- 
reformers  —  the  Socialists  —  hold  that,  in  order 
to  attain  social  justice,  not  only  natural  resources,  but  also 
capital,  must  be  socialized.      Therefore    the    Socialist,    in 


342  Elements  of  Economics 

his  program,  proposes  to  socialize  not  only  land,  but  also 
the  tools  of  production  included  in  capital. 

The  recent  growth  of  SociaUsm  is  one  of  the  important 
phenomena  of  modern  times.  In  several  European  coun- 
tries its  growth  has  been  so  rapid  that  many  beHeve  it 
will  eventually  become  a  firmly  established  institution. 
Although  the  Socialist  cause  in  this  country  musters  but 
half  a  million  votes,  it  has  attracted  to  its  ranks  capable 
men    from   many    walks  of  hfe.     To  many  the 

Its  growing  -' 

impor-  word  "  SociaHsm  "  stands  in  the  same  category 

^^^^^'  as  "  anarchy  "  ;  and  that  in  the  same  category 

as  "  bomb  throwing."  Such  confusion  of  thought  is  the 
mark  of  an  untrained  mind. 

The  objections  which  SociaHsm  makes  to  the  present  order 
of  society  seem  to  group  themselves  under  five  headings. 
First,  there  is  the  belief  in  the  universahty  of  exploitation. 
Exploitation  means  that  an  individual  receives  less  than  he 
Its  criti-  produces.  According  to  the  SociaUst's  use  of 
cisms:  ^^^  term,  a  day  laborer,  creating  in  a  year  $900 

tionlf^'  worth  of  value  and  receiving  only  $400  in  wages, 
labor.  is  being  exploited  by  the  capitalist  to  the  amount 

of  $500.  In  the  eyes  of  the  SociaHst,  exploitation  is 
an  inevitable  result  of  a  system  which  permits  the  private 
ownership  of  tools  of  production  and  the  control  of  capital 
in  such  a  manner  that  the  owner  of  the  machine  becomes 
the  master.  It  is  to  the  interest  of  the  tool  owner  to  get 
the  tool  user  to  work  at  the  lowest  possible  wage;  hence 
exploitation  eventually  results. 

The  second  criticism  that  the  Socialist  urges  against  the 
present  system  is  that  it  permits  the  growth  of  private  mo- 
nopoKes  and  offers  no  effective  way  to  check  them.  Many 
fabulous  fortunes,  he  asserts,  have  been  made  through  the 


Programs  of  Socialization  343 

monopoly  control  of  articles  of  general  consumption, — coal, 
meat,   ice,   and  iron;     or  through   the  ownership  of  mo- 
nopoly  business,  —  street-car   hnes,  telephones,  croti//?  of 
railroads,  gas,  and  water  supply.     The  SocIaKst  private 
beheves  that  it  is  hopeless  and  furthermore  un-   "'"""^'^y- 
desirable  to  endeavor  to  restore  competition  as  a  regulator 
of  prices.     As  competition  largely  gave  way  to  combination, 
so  he  believes  State  monopoly  must  succeed  private  mo- 
nopoly. 

The  third  criticism  offered  by  the  Socialist  is  that  society 
lacks  a  plan  for  the  constructive  development  of  all  its  parts. 
He  sees  chaos  in  the  present  arrangement.  To  him  the 
world  is  a  bundle  of  contradictions.  In  an  age  of  plenty, 
he  still  sees  the  universal  specters  of  poverty,  ^^^^  , 
ignorance,  and  crime.  Although  man  has  con-  equal  op- 
quered  his  en\ironment  through  harnessing  the  ^'"■'"'"'^• 
forces  of  nature,  there  are  still  underfed  children,  homeless 
men,  imperfect  sanitation,  low  pay,  and  lack  of  employ- 
ment. Too  often  the  welfare  and  happiness  of  many  are 
dependent  solely  on  the  accident  of  birth.  The  race  of 
life  is  unequal.  Some  start  with  such  handicaps  as  a  body 
undernourished  from  infancy,  and  a  mind  equipped  with 
but  the  merest  rudiments  of  education.  These  at  thirteen 
or  fourteen  are  destined  to  the  life  of  a  factory,  while 
others  have  the  possibility  of  a  college  diploma  and  the 
assurance  of  a  social  and  business  position. 

The  fourth  criticism  that  the  Socialist  urges  against  mod- 
ern society  is  its  wastefulness.     Competition  is  uneconomic ; 
cooperation,    economic.     Under    the    competitive    system 
much  is  done  in  dui)licate  and  trii)licate  that  could   waste  of 
just  as  well,  under  a  system  of  cooperation,  be  done  ''■^'"''■ 
but  once.     This  is  particularly  true  in  the  distribution  of 


344  Elements  of  Economics 

goods  for  consumption.  A  half  dozen  competing  hucksters, 
milkmen,  and  icemen  pass  over  the  same  route  daily  when 
half  that  number  might  have  distributed  the  same  amount  of 
goods  had  there  been  no  competition. 

A  fifth  criticism  of  the  Sociahst  is  against  the  essentially 
evil  nature  of  competition.  In  industrial  competition  he 
sees  a  force  that  calls  out  all  the  bad  in  human  nature,  while 

at  the  same  time  it  suppresses  much  that  is  good. 
compeiiiion.     ^'^  Undersell  their  competitors  and  make  a  profit, 

men  adulterate  food,  employ  child  labor,  violate 
factory  inspection  laws,  and  pay  low  wages.  Competition 
puts  the  law-abiding  and  humane  employer  at  a  disadvan- 
tage and  forces  the  indifferent  employer  over  into  the  camp 
of  those  who  seek  success  at  any  price. 

And  so  State  Socialism,  weighing  the  present  organization 
of  society  in  the  balance  and  finding  it  wanting,  comes  for- 
ward with  a  plan  built  on  an  entirely  different  basis.  It 
proposes  to  substitute  for  the  private  ownership  of  all  land 
and  capital  goods,  —  factories,  railroads,  stores,  and  the 
Its  leading  ^^^^'  —  social  ownership  and  operation.  In  this 
principles:  plan  the  SociaUst  sees  many  advantages.  Un- 
^meiu'^'  ^^^  ?>Vic\i  a  system  there  would  be  no  capitaHst 

ownership       to  demand  interest ;  all  the  returns  of  labor  would 

go  to  labor,  and  exploitation  would  cease.  As 
the  government  would  own  all  the  land  and  natural  resources, 
there  would  be  no  monopohst's  profits  to  be  paid  out  of  the 
pockets  of  consumers.  Since  competition  would  be  de- 
stroyed, there  would  be  no  further  incentive  to  adulteration  of 
goods,  to  child  labor,  or  to  the  violation  of  health  and  fire 
ordinances.  In  place  of  a  society  of  competing  units,  each 
strugghng  to  get  the  most  for  himself,  State  Socialism  would 
substitute  an  orderly  plan  for  the  attainment  of  definite  and 


Programs  of  Socialization  345 

uniform  results.  Every  child  would  be  guaranteed  education 
and  support  at  State  expense,  and  every  man  in  old  age  after 
his  Hf e  work  is  over  would  be  an  honored  pensioner  of  the  gov- 
ernment. Instead  of  working  ten  and  eleven  hours  a  day, 
the  working  day  would  be  cut  in  half  through  the  economies 
of  cooperative  action. 

The  Socialist  beheves  that  in  many  ways  society  has 
outgrown  the  institution  of  private  property,  just  as  much  as 
it  has  outgrown  the  institution  of  property  in  individuals 
called  slavery.  He  admits  that  both  may  have  been  valu- 
able at  a  certain  stage  in  the  development  of  civahzation, 
but  asserts  that  that  time  is  now  passed.  In  attacking 
the  institution  of  private  property,  it  should  be  borne  in 
mind  that  the  SociaHst  opposes  private  ownership  in  land 
and  the  tools  of  production  only.  In  common  with  the 
Single  Taxer,  the  SociaUst  beheves  that  the  land  is  a  gift 
to  all,  from  the  Creator,  as  free  as  air  or  water,  p^i-j^^g 
He  would,  therefore,  restore  it  to  its  original  property 
state.  Arguing  solely  from  the  standpoint  of  "^^"^^  ■ 
expediency,  he  upholds  that,  if  the  best  interests  of  society 
are  served  by  a  system  of  common  ownership  of  its  capital 
goods,  there  is  no  valid  reason  why  such  a  system  should 
not  be  put  into  operation. 

The  SociaUst  therefore  goes  one  step  beyond  the  Single 
Taxer.  He  would  socialize  capital  as  well  as  land.  Would 
Socialism  inaugurate  the  millennium  ?  Certainly  its  limita- 
not.  Men  and  women  would  still  be  dishonest,  *»o°s. 
lazy,  shiftless,  and  vicious  under  Socialism.  Officials 
would  steal ;  ambitious  men  would  usurp  power ;  dema- 
gogues would  secure  office.  Socialism  would  not  reform 
men  —  it  might  give  them  a  chance  to  improve  their  con- 
dition.    Under  Socialism  the  i)ro(luctive  machinery  would 


346  Elements  of  Economics 

be  less  efficient;  there  would  be  less  opportunity  for  the 
genius  to  make  his  mark  in  industry ;  the  whole  mechanism 
of  society  might  prove  too  great  a  burden  for  a  government 
to  carry  successfully.  One  fact  is  obvious  —  neither  So- 
cialism nor  any  other  scheme  of  social  betterment  can  suc- 
ceed until  the  standard  of  education  is  raised  among  the 
people. 

In  Germany,  the  Socialists  cast  more  votes  than  any  other 
poHtical  party.  In  Belgium,  France,  Italy,  and  England, 
Socialism  has  Hkewise  gained  a  strong  foothold.  In  the 
United  States,  although  the  number  of  SociaHsts  is  com- 
paratively small,  they  have  elected  mayors,  legislators,  and 
Its  future  °^^^'*  pubUc  officials.  Thus  the  movement 
which  was  at  one  time  openly  ridiculed  is  now 
secretly  feared.  Its  leading  thought  —  the  increase  of 
social  control  —  is  steadily  gaining  ground.  Everywhere, 
we  find  government  taking  on  more  authority  and  exer- 
cising greater  power.  Thus,  while  it  is  unlikely  that  the 
doctrines  of  State  Sociahsm  will  be  carried  out  in  their 
entirety,  it  is  equally  likely  that  they  will  be  apphed  in  a 
modified  form  to  the  solution  of  many  pressing  problems. 

TOPICS   FOR   CLASS   DISCUSSION 

1.  What  is  "the  full  economic  value  of  land  "  which  Henry  George 
would  absorb  by  a  tax  ? 

2.  Outline  the  arguments  for  and  against  the  Single  Tax. 

3.  What   has    the    Single  Tax  accomplished  as  applied  in  New 
Zealand  ? 

4.  What  is  exploitation  ? 

5.  Of  the  bases  of  modern  Socialistic  thought,  which  appears  to  you 
to  be  the  strongest  ? 

6.  Was  Marx  correct  in  assuming  that  labor  is  the  sole  cause  of 
value  in  exchange  ? 


Programs  of  Socialization  347 

7.  Why  has  State  Socialism  had  such  a  rapid  rise  in  Germany  ? 

8.  What  are  the  leading  economic  doctrines  in  the  platform  of  the 
American  Socialist  party  ? 

9.  To  what  group  in  the  community  do  the  doctrines  of  Socialism 
make  their  strongest  appeal  ? 

10.  Theoretically,  which  group  in  the  community  would  be  the 
chief  gainer  through  Socialism  ? 

11.  Outline  the  best  arguments  in  favor  of  Socialism. 

12.  OutUne  the  best  arguments  against  Socialism. 

13.  Is  Socialism  to  be  judged  by  its  ideal  or  by  its  probable  working  ? 

14.  What  are  the  difficulties  which  you  think  the  cooperative 
commonwealth  would  experience  ? 

15.  Do  you  think  it  possible  for  a  government  representing  the 
workers  to  take  over  one  great  industry  after  another  and  to  operate 
these  great  industries  for  the  common  welfare  rather  than  for  profits  ? 

16.  Does  the  Socialist  urge  equal  distribution  of  wealth  ? 

17.  What  are  the  forces  making  for  Socialism  in  the  United  States 
to-day  ?     WTiat  are  the  forces  militating  against  Socialism  ?    ■ 

18.  Why  is  it  not  right  to  say  of  every  public  interference  in  in- 
dustry that  it  is  socialistic.     When  may  a  measure  be  called  socialistic  ? 

REFERENCES 

Progress  and  Poverty  —  Henry  George. 
History  of  Socialism  —  Morris  Hillquit. 
Socialists  at  Work  —  Robert  Hunter. 
History  of  Socialism  —  T.  Kirkup. 
Man  versus  the  State  —  Herbert  Spencer. 


CHAPTER  XLII 
Social  and  Economic  Progress 

I.  Belief  in  progress 

1 .  What  is  progress  ? 

2.  Its  philosophical  basis  : 

a.  Influence  of  environment : 
(i)  The  two  forces 

(2)  The  old  fatahsm 

(3)  The  new  optimism 

h.  Belief  in  natural  capacity : 
(i)  The  former  attitude 
(2)  The  present  belief 

II.  Requisites  of  progress 

1 .  The  ideals : 

a.  Opportunity 

b.  Social  adjustment 

c.  Efficiency  and  education 

d.  Leisure 

e.  Recreation 
/.   Health 

2.  The  method 

At  first  glance  the  various  experiments  and  programs  for 
individual  and  social  betterment  seem  to  have  httle  in 
common.  From  the  benevolent  attempts  of  the  employer 
to  improve  the  condition  of  his  worker  to  the  insistent 
demands  of  the  SociaHst  for  the  social  ownership  of  the  tools 
of  production,  there  are  many  varieties  of  proposals.  But 
while  these  programs  of  economic  reform  show  such  diver- 
sity of  thought  and  opinion,  they  nevertheless  have  a  com- 

348 


Social  and  Economic  Progress  349 

mon  basis.  .\11  rest  upon  the  belief  that  economic  and 
social  conditions  demand  improvement,  —  all  are  programs 
of  progress. 

Belief  in  Progress.  — After  all,  then,  these  diverse  plans 
of  economic  reform  have  a  unity  of  purpose,  —  a  desire 
to  better  the  condition  of  the  worker.  Their  advocates, 
who  beheve  absolutely  in  the  attainment  of  progress,  are 
sharply  distinguished  from  those  conservatives  and  reaction- 
aries who  beheve  that  "  Whatever  is,  is  right."  These  pro- 
gressives are  not  content  with  "  well  enough ' ' ;  they  are  always 
striving  for  "something  better."  Progress  is  what  is 
the  goal  of  aU  their  activities.  But  what  is  Progress? 
progress?  It  is  the  forward  movement  of  all  members  of 
society,  —  not  the  mere  advance  of  particular  individuals. 
From  an  economic  standpoint,  progress  is  measured  by 
individual  and  social  welfare,  and  the  test  of  this  welfare 
is  individual  and  social  prosperity.  Thus,  progress  is  not 
only  the  goal  of  economic  endeavor,  but  it  is  also  the  goal 
of  economic  reform. 

What  reason  have  men   for  beHeving  that  progress  is 
possible?     To  answer  this  question,  one  must  understand 
the  character  of  the  forces  at  work  in  shaping  its  basis: 
the  destinies  of  life.     Broadly  speaking,   these  lfjJ/J^_ 
forces  are  those  of  heredity  and  environment,   meni. 
Every  one's  life  is  a  product  of  these  two  forces.     Man  is 
thus  a  combination  of  inherited  traits  and  acquired  charac- 
teristics.    But  which  of  these  two  sets  of  forces  is  the  domi- 
nating element  in  the  Hfe  of  man?     One's  attitude  on  this 
question  determines  one's  philosophy  of  life.     The  advocate 
of  progress  buses  his  belief  on  the  dominating  influence  of 
environment. 

The  eff"ect  of  the  opposite  view  —  that  man's  course  is 


350  Elements  of  Economics 

determined  by  hereditary  influences  —  is  at  once  apparent. 
If  this  be  true,  progress  is  impossible  in  many  cases.  Ac- 
cording to  this  behef,  men  may  be  born  vicious  and  des- 
tined, by  the  laws  of  heredity,  to  remain  so  from  generation 
to  generation.  This  represents  the  old  fatahstic  attitude 
of  the  past.  So  long  as  men  beheved  that  the  evils  of  the 
past  were  transmitted  to  the  present,  progress  was  practi- 
cally impossible.  There  was  no  possibility  of  going  into  the, 
past  and  influencing  the  parents  of  the  present  generation. 
This  present  generation,  depraved  because  of  the  depravity 
of  its  ancestors,  must  in  its  turn  hand  on  its  low  standards 
to  the  generations  of  the  future.  Thus  the  process  would 
be  endlessly  continued  through  years  of  hopeless  despond- 
ency. This  old  behef  in  hereditary  depravity  —  in  the 
transmission  of  acquired  characteristics  —  kept  society 
from  properly  educating  the  child,  prevented  normal  care 
of  the  criminal  and  social  outcast,  and,  in  every  direction, 
restricted  individual  and  social  progress. 

The  new  view  is  full  of  hope  and  promise.  The  modern 
progressive  has  shaken  himself  free  from  the  old  fatahstic 
behef  in  the  inheritance  of  acquired  traits ;  and  announces 
fearlessly  that,  since  he  believes  that  only  race  traits  are 
inherited,  the  vast  majority  of  evils  which  beset  mankind  is 
not  the  product  of  heredity,  but  is  generated  largely  by  the 
environment.  This  view,  by  emphasizing  the  fact  that 
most  men  are  normal,  makes  progress  possible.  It  forms 
the  basis  of  a  new  optimism  and  is  characteristic  of  the  atti- 
tude of  the  modern  social  worker.  According  to  this  behef, 
social  and  economic  conditions  may  be  improved  simply 
by  improving  man's  environment.  The  fundamental  evil 
Hes  not  in  the  individual,  but  in  conditions  surrounding  him. 
If  bad  hving  and  working  conditions   are   largely  respon- 


Social  and  Economic  Progress  351 

sible  for  misery  and  vice,  the  surroundings  of  the  worker 
must  be  improved.  Instead  of  the  past,  the  present  must 
be  investigated.  Each  generation  starts  afresh  and,  by 
improving  its  surroundings,  may  rise  to  a  higher  level  than 
that  reached  by  its  predecessor.  Thus  progress  is  always 
attainable. 

The  other  side  of  this  conviction,  that  improvement  in 
enxdroning  conditions  will  remove  the  cause  of  misery  and 
vice,  is  expressed,  of  course,  in  the  behef  in  man's  natural 
capacity.  These  convictions  are  complementary.  Man 
himself  is  beheved  to  be  thoroughly  capable  of  improvement, 
and  this  behef  furnishes  a  real  basis  for  progress.  This 
concept  of  the  natural  capacity  of  man  dominates  the 
thought  of  a  progressive  society.  If  people  were  ^^i-^f  -^^ 
born  with  a  fatalistic  curse  upon  their  heads,  if  natural 
total  depravity  were  an  inherited  thing  —  the  '^'^  ''^  '^' 
product  of  the  degeneracy  of  past  ages  —  progress  would 
hardly  be  possible.  During  the  centuries  when  such  ideas 
were  held,  Httle  progress  in  the  condition  of  the  masses  was 
made,  because  each  person  felt  the  impossibility  of  a  forward 
movement.  Recent  years,  however,  have  seen  a  distinct 
change  in  this  respect.  Thinkers  now  vigorously  maintain 
the  possibihty  of  improvement ;  they  have  turned  from  the 
argument  of  "  total  depravity "  to  that  of  "  universal 
capacity." 

Requisites  of  Progress.  —  If,  then,  man  is  capable  of 
improvement  and  progressive  development,  what  is  required 
to  call  this  forth  ?  In  the  first  place,  he  must  be  given  oppor- 
tunity. This  was  emphasized  at  the  outset  of  our  study  and 
it  is  now  restated  in  the  clo.sing  pages.  Equal  opportunity, 
however,  means  neither  equality  nor  identity.  An  embryotic 
painter  and  an  embryotic  engineer  are  neither  equal  nor 


352  Ele^nents  of  Economics 

identical,  yet  both  may  be  afforded  an  equal  chance  to 
develop  their  respective  talents.  Thus,  equal  opportunity 
The  means  simply  an  equal  chance  to  advance  and 

ideals :  is  advocatcd,  regardless  of  any  particular  program 

pportunity.  ^^  reform,  by  all  believers  in  progress.  If, 
to-day,  nine  tenths  of  the  men  and  women  about  us  are  born 
approximately  normal  and  naturally  capable,  they  will  all 
make  progress  when  given  equal  opportunity. 

But  something  more  than  opportunity  is  essential  to 
progress.  Society  needs  adjustment.  In  order  to  secure 
this  universaHty  of  opportunity  which  will  permit  of  indi- 
Sociai  ad-  vidual  development,  changes  must  be  made  in 
justment.  environing  conditions.  Famihes  are  underfed 
and  badly  housed ;  children  are  sent  into  the  mills  at  four- 
teen ;  the  school  system  is  not  planned  primarily  for  the 
worker ;  and  men  die  at  an  early  age  because  of  industrial 
accidents  and  preventable  diseases.  These  maladjustments 
which  are  responsible  for  lack  of  opportunity  must  be  swept 
aside.  No  conscious  will  has  placed  obstacles  in  the  way  of 
man's  development ;  and  through  adjustment  society  itself 
must  remove  them  wherever  they  exist. 

Of  equal  importance  with  opportunity  and  adjustment  is 
efficiency.  Of  course,  if  opportunity  is  afforded,  efficiency 
will  usually  follow.  In  all  directions  the  cry  of  efficiency  is 
heard.  If  progress  is  to  be  attained,  society  as  well  as  in- 
dividuals must  develop  the  capacity  to  produce  maximum 
Efficiency  ^esults  with  minimum  outlays.  In  the  factory, 
and  edu-  in  the  homc,  in  the  school,  in  the  nation  —  every- 
where —  efficiency  is  equally  essential.  All  pro- 
grams of  genuine  progress  emphasize  this  as  one  of  the  foun- 
dations of  progress.  Efficiency,  of  course,  is  attained  through 
some  form  of  education.     Thus  the  economic  importance  of 


Social  and  Economic  Progress  353 

education  becomes  at  once  apparent.     Efficiency,   as  we 
have  previously  seen,  also  involves  conservation. 

With  opportunity,  adjustment,  and  efficiency,  come  other 
ideals  of  progress.  Chief  among  these  are  leisure,  recrea- 
tion, and  health.  Without  free  activity,  progress  is  not 
possible.  Individuals  must  have  spare  time  in 
which  to  do  those  things  that  it  is  impossible  to 
accompHsh  in  the  rush  of  industrial  hfe.  The  great  achieve- 
ments of  the  world  are  often  the  products  of  leisure  time. 
When  men  and  women  are  educated  to  a  wise  use  of  free 
time,  a  shorter  working  day  will  prove  of  inestimable  advan- 
tage to  true  progress. 

Along  with  the  requisite  of  leisure  comes  the  chance  for 
recreation.  To  be  progressive  —  to  be  able  to  move  for- 
ward in  the  affairs  of  Hfe  —  man  must  have  some  relief 
from  the  strain  of  industry.  This  is  afforded  through  proper 
faciUties    for    recreation.     Thus,    realizing  that 

.   .      Recreation. 

recreation  is  an  ideal  of  true  progress,  mumci- 
palities  every  year  appropriate  large  sums  of  money  for 
playgrounds,  parks,  and  recreation  piers;  while  in  many 
directions  attempts  are  being  made  to  regulate  theatrical 
performances  and  moving  picture  exhibitions.  At  the  same 
time,  many  efforts  are  directed  toward  providing  some 
legitimate  form  of  recreation  for  rural  districts. 

;\nother  ideal  absolutely  essential  to  progress  is  that  of 
health.  It  is,  in  some  respects,  the  most  vital  of  them  all. 
Without  a  strong,  robust  body,  life  is  undesirable  if  not 
impossible.  In  every  program  of  progress,  there- 
fore, full  provision  should  be  made  to  develop  and 
maintain  sound  health.  The  social  worker,  to-day,  realizes 
the  necessity  for  this  ideal  more  than  any  other  reformer. 

Formerlv,  men  beh'cvcd  that  disease  alwavs  came  as  a 


354  Elements  of  Economics 

punishment  for  wrongdoing  and  was  aa  evidence  of  divine 
wrath.  This  was  a  remnant  of  the  old  fatalistic  attitude. 
To-day,  men  have  scientifically  demonstrated  that,  not 
divine  wrath,  but  germs  and  bacteria  are  the  cause  of  disease. 
Malaria  is  not  carried  through  the  air  in  the  form  of  vapor, 
but  is  transmitted  through  the  sting  of  a  mosquito.  Rem- 
edy for  malaria,  therefore,  takes  the  form,  not  of  sacrifices 
to  appease  divine  wrath,  but  of  a  generous  appHcation  of 
crude  oil  to  the  marshes  and  ponds  in  which  the  mosquito 
breeds.  Thus,  science  puts  to  rout  the  old  fataHsm,  and 
helps  in  the  cause  of  progress. 

Concerning  these  ideals  of  progress  all  reformers  are  in 
practical  accord.  All  would  move  in  the  same  direction, 
with  the  same  general  end  in  view.  It  is  not  the  end  — 
the  goal  of  progress  —  upon  which  social  reformers  differ ; 
it  is  the  means  —  the  method  of  attaining  their  ultimate 
desire.  But  even  here  there  is  some  agreement  —  some 
measure  of  unison.  This  manifests  itself  chiefly  in  one 
direction.  It  is  generally  admitted  that  progress  should  be 
The  attained,    not    through    sudden    revolution,  but 

attaiiiing°  through  gradual  evolution.  Sudden  disturb- 
progress.  ances  seldom  effect  permanent  changes.  Through 
the  slow  processes  of  time,  extending  over  many  generations 
and  even  centuries,  progress  is  attained.  To  be  sure, 
revolutions  do  occur;  and  when  they  do,  they  provoke 
thought  and  discussion.  Nevertheless,  no  one  can  reason- 
ably conceive  of  a  social  or  economic  revolution  that  in  one 
generation  would  permanently  change  the  methods  of  thought 
or  motives  of  activity  of  all  the  people.  The  incoming  of  the 
factory  system  and  the  enunciation  of  Darwin's  concept 
of  evolution  are  good  illustrations  of  revolutionary  changes 
in  economic  behef  and  social  thought.     Yet,  in  both  these 


Social  and  Economic  Progress  355 

cases,  the  change  in  popular  opinion  required  decades  for  its 
completion.  So,  inevitably,  it  must  be  with  any  funda- 
mental change  instituted  in  behalf  of  social  and  economic 
progress.     Revolution  is  uncertain ;  evolution  is  unfailing. 

TOPICS   FOR  CLASS  DISCUSSION 

1 .  What  is  your  idea  of  progress  ? 

2.  What  part  does  the  environment  play  in  progress  ? 

3.  Why  are  modern  thinkers  optimistic  ? 

4.  What  is  meant  by  the  expression  "environment  is  plastic"  ? 

5.  What  basis  does  the  belief  in  natural   capacity   furnish   for 
optimism  ? 

6.  What  part  will  opportunity  play  in  progress  ? 

7.  WTiat  measures  are  being  taken  to-day  to  prevent  congestion  of 
population  ?     Premature  employment  ? 

8.  WTiat  steps  are  being  taken  to  accomplish  a  better  distribution 
of  p>opulation  in  this  country  ? 

9.  \\'hat  are  some  of  the  leading_ lines  of  activity  in  social  work  now 
being  undertaken  in  America  ? 

10.  VVTiich  is  more  important,  approximate  equality  of  possessions 
or  approximate  equality  of  opportunity  ?  Do  we  have  to  destroy  the 
present  in  order  to  secure  the  latter  ? 

11.  With  a  more  general  diffusion  of  knowledge,  culture,  and  pub- 
licity, is  political  democracy  in  more  or  less  danger  ?  Is  equality  of 
opportunity  more  or  less  likely  to  ensue  ? 

REFERENCES 

Product  and  Climax  —  S.  N.  Patten. 

The  Xew  Basis  of  Civilization  —  S.  N.  Patten. 

Social  Forces  —  Yl.  T.  Dcvine. 

Essays  upon  Heredity  —  Weismann. 


INDEX 


Accidents : 

causes  of.  gs. 

effects  of,  q8. 

kinds  of,  Q5  et  seq. 

number  of,  96  el  seq. 

remedy  for,  95,  97. 
Adjustment : 

meaning  of,  5. 

requisite  of  progress,  351  et  seq. 
Agencies : 

land  transportation,  190  cl  seq. 

water  transportation,  73  rt  <:eq. 
Agriculture: 

development  of,  139  el  seq. 

early  methods  of,  140. 

importance  of,  141. 

kinds  of,  142  et  seq. 

training  in,  144. 
American  foreign  trade: 

exports,  243. 

imports,  243. 
Animal  life,  152  el  seq. 
Anti-Trust  Act,  179. 
Apportionment  of  taxes,  see  Taxation. 

H 
Ranking. 

cooperation  in,  317 

op)erations  of,  228,  229 
Barter,  223. 

Kills  of  exchange,  sec  Credit 
Book  credit,  sec  Credit. 
Boss,  186. 
Boycott : 

forms  of,  326. 

meaning  of,  326 
Burden  of  taxation,  wc  Taxation 
Businc!«s  organization : 

early  ff)rms.  171;. 

later  forms,  175  el  seq. 
By-products,  170. 


Capital : 

character  of,  121  el  seq. 

definition  of,  122. 

efficiency  and,  127,  130.  276 

kinds  of,  128  el  seq. 

management  of,  130,  238  el  seq. 

origin  of,  124  el  seq. 

reward  of,  274  el  seq. 
Capital  good,  124. 
Cereals,  142. 
Checks,  see  Credit. 
Child  labor : 

consequences  of.  105  el  seq. 

extent  of,  104. 

regulation  of,  107. 
China,  13  ct  seq. 
Circulating  capital,  see  Capital. 
City  life,  136. 
Civilization,  47,  134. 
Climate,  49,  50. 
Clothing,  32,  35. 
Coal : 

consumption  of.  50,  51 . 

danger  from  dust.  90.  100. 

supply  of,  so 
Colonists : 

of  Middle  States,  83,  84. 

of  North,  82,  83. 

of  South,  84. 
Combinations,     see     Corporations    and 

Trusts. 
Commerce : 

early  restrictions  on,  i^k). 

regulation  of,  198  rl  seq. 
Com[X'tition  : 

and  price,  211,  212 

evils  of,  344. 
Conservation : 

of  health,  12,  13.  81.  308  rl  seq..  353. 
3.'>4. 

o(  indu8tr>.  12 


357 


358 


Index 


Conservation  : 

of  natural  resources,  ii,  53,  68,  76,  149. 
Consumption: 

cooperation  in,  317  el  seq 

meaning  of,  21. 

principles  of,  27  el  seq. 

productive  and   unproductive,    122. 
Cooperation : 

advantages  of,  184. 

and  social  surplus,  133  el  seq. 

experiments  in,  317  el  seq. 

outlook  for,  320 

stages  of,  183. 
Copper,  52. 
Corn,  156. 
Corporations ; 

advantages  of,  176. 

and  finance,  232  el  seq. 

nature  of,  176. 

regulation  of,  see  Trusts. 
Cost  of  living : 

diflerences  in,  32,  s$. 

items  in,  33  el  seq. 
Cost  prices,  S3i 
Cotton  gin,  139. 
Cover  crops,  149,  150. 
Credit : 

advantages  of,  230. 

kinds  of,  226  el  seq. 

meaning  of,  226 

D 

Dairying,  143. 
Dangerous  trades : 

chief  source  of  danger,  99. 

lead  poisoning,  loi. 

remedy  for,  100,  loi. 
Demand,  see  Supply. 
Diet,  28,  313. 
Differential  rent,  see  Rent. 
Differentiation: 

in  education,  116  el  seq. 

in  industry,  184. 

in  labor,  183. 
Direct  taxes,  see  Taxation. 
Dismal  swamp,  60. 
Distribution  of  wealth: 

meaning  of,  256. 

outlook  for,  296  el  seq. 

shares  in,  256,  257. 

theories  of,  261  et  seq. 


Division  of  labor,  183. 
Drainage: 

extent  in  United  States,  59. 

method  of,  59. 
Duties,  see  Taxation. 

E 

Economic  ideals,  9  el  seq.,  352  el  seq. 
Economic  life,  21  el  seq. 
Economic  programs,  see  Programs. 
Economic  rent,  see  Rent 
Economics : 

meaning  of,  xiii. 

study  of,  xiv  el  seq.,  i  et  seq. 
Education : 

differentiation  in,  116  el  seq. 

function  of,  113,  114 

progress  and,  352. 

social  surplus  and,  135. 

uniformity  in,  114  el  seq. 
Efficiency,  9  el  seq.,  352. 
Electric  traction : 

rural,  195. 

urban,  195. 
Eminent  domain,  192. 
Entrepreneur: 

grades  of,  284,  285. 

meaning  of,  175,  282. 
Environment,  349,  350. 
Exchange : 

bills  of,  228. 

meaning  of,  209,  228. 

method  of,  223. 
Excises,  see  Taxation. 
Experiments : 

in  cooperation,  3176/  seq. 

in  profit  sharing,  306,  307. 

in  welfare  work,  308,  309. 
Exploitation,  258,  259,  342. 
Exports,  243. 
Express  companies : 

growth  of,  193. 

regulation  of,  194. 


Factory  system : 

advantages  of,  163,  164. 

disadvantages  of,  165. 

features  of,  163. 
Farming,  138  et  seq. 


Index 


359 


Fatalism,  4,  350. 
Fertility  : 

exhaustion  of,  146  el  seq. 

restoration  of,  148  el  seq. 
Fertilizers,  149. 
Finance : 

evolution  of,  232  el  seq. 

modern  method  of,  234  el  seq. 

results  of,  237,  238. 
Fixed  capital,  see  Capital. 
Florida  Everglades,  60. 
Food,  32,  34. 
Foreign  trade,  243  el  seq. 
Forests : 

conservation  of,  ii,  12,  68. 

destruction  of,  65  el  seq. 

groups  of,  63,  64. 
Franchise  monopolies,  see  Monopolies 
Free  capital,  see  Capital. 
Free  trade,  246,  249. 
Fruit  growing,  143. 
Fuel,  33,  35- 
Funds,  see  Finance. 

C. 

Gas,  51.52 

General  property  tax,  see  Taxation 
Goods,  see  Economics. 
Government  ownership,  344,  345. 
Government  regulation : 

of  railroads,  200  el  seq. 

of  trusts,  178  el  seq. 

program  of,  329  et  seq. 
Grades  of : 

entcrpreneurs,  284,  285. 

laborers,  290. 

lanrl,  268  el  srq. 
Group  monopoly.  298. 

11 
Health,  35.3- 
Holding  company,  178. 
Hours  of  work : 

regulation  of,  331. 

unionism  and,  322,  323. 
Humus,  147- 
Husbands  of  industry,  sec  Cooperation. 


I 


Immigrants: 
character  of.  90. 
groups  of,  89. 
Immigration : 
causes  of,  88,  89. 
effect  of,  89  et  seq. 
restriction  of.  92. 
Imports,  243. 
Income : 

inequalities  in,  257  el  seq. 
taxation  of,  253. 
Indirect  taxes,  see  Taxation. 
Individualism,  329,  330. 
Industrial  monopolies,  see  Monopoly. 
Industry : 

accidents  in,  95  et  seq. 
character  of  American,  158  el  seq. 
specialization  in,  170,  184. 
women  in,  107,  108. 
Interest : 

nature  of,  274  el  seq. 
rate  of,  276  el  seq. 
source  of  fund,  278,  279. 
International  trade ; 
basis  of,  242. 

characteristics  of,  243,  244. 
restriction  of,  245. 
Interstate  Commerce  Act : 
main  provisions  of,  200. 
modifications  of,  202,  203. 
Inventions: 

effect  of,  162,  163. 
importance  of,  140,  141. 
Iron,  S2- 
Irrigation : 

act  of  1902,  57- 
advantages  of,  58. 
extent  of,  57 


Japan,  14- 


J 


Idcils,  9  et  seq.,  352,  3S3- 
Illiteracy,  iiS- 


Knights  of  labor,  see  Coofjcration. 

L 
Labor : 

character    in    the    United    States,    82 

el  seq. 
conservation  of,  81. 
division  of.  107,  183. 


36o 


Index 


Labor : 

educatioa  of,  113  et  seq. 

effect  of  immigration  on,  91,  92. 

groups  of,  290. 

importance  of,  79,  80. 

meaning  of,  80. 

monopoly   power   of,    292,    293,    297, 
298, 

of  children,  104  et  seq. 

of  women,  107,  108. 

organization  of,  185  el  seq.,  297,  298. 

problems  of,  103  el  seq. 

risks  of,  94  et  seq. 
Land: 

and  production,  see  Natural  Resources. 

and  taxation,  see  Single  Tax. 

monopoly  of,  258. 
Large  scale  production: 

advantages  of,  169,  170. 

disadvantages  of,  171,  172. 

nature  of,  167,  168. 
Legislation : 

for  railroads,  200  et  seq 

for  trusts,  178  el  seq. 
Legumes,  150. 
Leisure,  135,  353. 
Liability,  176 
Light,  33. 
Living :  ^ 

cost  of,  51  et  seq. 

standard  of,  23,  24,  33  et  seq. 


M 
Machinery : 

development  of,  160,  162,  163. 

importance  of,  140,  141. 
Malnutrition,  109. 
Manager,  185,  282. 
Manufacturing,  160,  162,  163. 
Manure,  148,  149. 
Marginal  rent,  see  Rent. 
Market  gardening,  144. 
Minerals,  50  ct  seq. 
Mining  accidents,  see  Accidents. 
Mississippi  River,  75,  76 
Mobility  of  labor,  299. 
Money : 

and  capital,  123,  124. 

and  exchange,  223  el  seq. 

and  price,  211 


Monopoly . 

and  labor,  297,  298. 

and  price,  214  e/  seq. 

and  railroads,  191. 

and  wages,  293. 

kinds  of,  216  et  seq. 

of  capital,  258,  259. 

of  land,  258. 

theory  of,  262,  263. 
Mormons,  56. 

N 

Natural  capacity,  351. 
Natural  resources: 
of  China,  14,  15. 
of  United  States: 

agriculture,  49,  138  et  seq. 
forests,  62  et  seq. 
minerals,  50  et  seq. 
water,  69  et  seq. 
Niagara  Falls,  71. 
"No  rent"  lands,  268 
Notes,  see  Credit. 

O 

"One"  crop  system,  147 
Opportunity,  3  el  seq..  343,  352- 
Optimism,  350 
Organization  ; 

of  business,  174  et  seq. 

of  labor,  185  et  seq.,  219,  220,  297,  298. 
Organizer,  185,  282. 
Overcapitalization,  238. 
Overproduction,  243. 


Panama  Canal,  74. 
Paper  money,  see  Money. 
Partnership: 

advantages  of,  175. 

disadvantages  of,  175. 

nature  of,  175 
Petroleum,  51 
Philanthropy  : 

problems  of,  310,  311. 

program  of,  312  et  seq. 
Police  power: 

application  of,  331. 

meaning  of,  331 
Pools,  177. 
Population : 

of  China,  14. 


Index 


361 


Population  : 
of  United  States 

early  character,  82  et  seq. 
later  character,  85,  89  el  seq. 
Price: 

and  monopoly,  214  el  seq. 
and  social  surplus,  134. 
and  value,  206  el  seq. 
and  wages,  41,  43. 
how  determined,  211,  212 
meaning  of,  210. 
regulation  of,  332  et  seq. 
rise  of,  43,  44. 
Production : 
cooperation  in,  319. 
factors  of,  46. 
large  scale,  167  el  seq. 
of  new  species,  152  e/  seq. 
Productivity,  261,  262,  291. 
Pro5ts : 

law  of,  284  el  seq. 
meaning  of,  282. 
nature  of,  283,  2S4. 
Profit  sharing : 
experiments  in,  30O,  307. 
forms  of,  305,  306. 
meaning  of,  305. 
Programs : 

of  regulation,  329  et  seq. 
of  socialization,  337  el  seq, 
of  unionism,  322,  523. 
Progress : 

basis  of,  349  et  set/ 
method  of,  354. 
requisites  of,  351  et  seq. 
Prosperity : 
individual,  18. 
national,  ij  </  seq 
Protection,  see  TarifT 
Public  land,  140 

Public  monopolies,  see  Monopoly 
Pueblos,  56. 


Quasi-public  corporations.  191,  192. 

R 
Racc^; 
characteristics  of,  89,  90 
cfTect  on  labor,  91,  92. 


Railroads: 

control  of,  190,  200  et  seq. 

growth  of,  igo,  igg. 

importance  of,  190. 

nature  of,  191. 
Reclamation : 

through  drainage,  59,  60. 

through  irrigation,  56  et  seq. 
Recreation,  135,  313,  353. 
Regulation: 

of  capital,  334. 

of  labor,  333. 

of  prices,  332  et  seq. 

of  railroads,  200  et  seq. 

of  trusts,  178  el  seq. 
Rent: 

and  standard  of  living,  32,  34 

kinds  of,  268  et  seq. 

law  of,  270  el  seq. 

meaning  of,  265,  266. 

single  tax  and,  338  et  seq. 
Requisites; 

of  managing  ability,  282. 

of  production,  46. 

of  progress,  351  el  seq. 
Resources,  see  Natural  Resources. 
Risk: 

and  interest,  278. 

and  labor,  94  et  seq. 

S 
Sanitation,  352. 
Saving : 

and  interest,  275. 

and  social  surplus,  137. 

how  capitalized,  125. 

origin  ol,  125, 
Selection: 

artificial,  153. 

effects  of,  IS4  el  seq 

natural,  153,  154. 
Sherman  Act,  179. 
Single  tax : 

advantages  of,  339,  340. 

basis  of,  340 

future  of,  341 

meaning  of,  339 
Socialism : 

character  of,  341 

criticisms  of,  342  et  seq. 

limitations  of,  345.  346. 


362 


Index 


Socialism  : 

principles  of,  344,  345. 
Social  surplus: 

causes  of,  133,  134. 

effects  of,  18,  134  el  seq. 

forms  of,  17,  134. 

meaning  of,  132. 

origin  of,  17. 
Social  work,  310  el  seq. 
Societies,  204. 
Soil: 

conservation  of,  149,  150. 

exhaustion  of,  147,  148. 
Specialized  capital,  see  Capital. 
Standard  of  living: 

elements  in,  33  el  seq. 

meaning  of,  23. 

wages  and,  37  el  seq. 
Standard  prices,  244. 
Steam  engine,  140. 
Stock  raising,  143. 
Stocks,  235. 
Strikes; 

effects  of,  325. 

meaning  of,  324. 
Substitution : 

effect  of,  215,  300 

meaning  of,  2Q9. 
Supply  and  demand' 

of  capital,  277. 

of  goods,  210 

of  labor,  291. 
Swamp  lands,  59,  60. 


Tariff: 

defect  in,  253. 

purpose  of;  245. 

revision  of,  334. 
Taxation : 

and  rent,  338  el  seq. 

federal,  249,  250. 

kinds  of,  249  el  seq. 

principles  of,  251  el  seq. 

purpose  of,  251. 

state  and  local,  251. 
Telegraph,  see  Transportation. 
Telephone,  see  Transportation. 
Trade : 

development  of,  241. 

international,  242,  243. 


restrictions  on,  160,  245. 
Trade  agreement,  see  Unionism. 
Trade  unions,  see  Unionism. 
Transportation : 

electric  traction,  194,  195. 

express  companies,  193,  194. 

railroad,  190  el  seq. 

regulation  of,  198  el  seq. 

telegraph,  193. 

telephone,  193. 
Trusts : 

finance,  234. 

forms  of,  177,  178. 

nature  of,  177 

regulation  of,  178,  179. 

U 
Unemployment : 

causes  of,  109. 

effects  of,  1 10 
Unionism: 

character  of,  320,  321. 

outlook  for,  327. 

program  of,  322,  323. 

weapons  of,  324  el  seq. 
United  States: 

agriculture  in,  138. 

and  China,  14. 

business  organization  in,  174  el  seq. 

climate  of,  49,  50. 

forests  of,  62  el  seq. 

industry  in,  158  el  seq. 

labor  in,  79  el  seq.,  185  el  seq. 

minerals  of,  50  el  seq. 

transportation  in,  189  el  seq. 

wages  in,  39  el  seq.,  322. 

water  resources  of,  69  el  seq. 
United  States  Steel  Corporation,  236. 
Utility : 

and  value,  207  el  seq. 

kinds  of,  25,  26. 

law  of,  26,  27,  2og,  210. 

meaning  of,  24. 


Valuation: 

of  future,  277. 

of  present,  275. 
Value: 

and  price,  210  el  seq. 

in  exchange,  209. 


Index 


2>^i 


Value  : 

in  use,  208. 

nature  of,  207.  208. 
X'ariety : 

in  consumption,  28,  29. 

in  new  species,  154,  135. 
Vegetable  life,  155,  156. 

W 

Wages :  • 

actual  wages,  39,  40 

and  prices,  41,  45. 

average  wages,  42. 

efficiency  wages,  38,  40. 

money  wages,  289. 

real  wages,  289. 

theory  of,  288  el  seq. 
Wage  worker : 

semi-skilled,  186 

skilled,  j86. 

unskilled,  187 


Wants : 

kinds  of,  24. 

meaning  of,  24. 
Water : 

for  power,  70  et  seq. 

for  transportation,  73  et  seq. 
Waterways,  12,  73,  74. 
Wealth,  xiii  el  seq. 
Welfare,  2  el  seq. 
Welfare  work: 

forms  of,  308,  309. 

meaning  of,  308 

origin  of,  308. 
Wheat,  156. 
Women  workers: 

arguments  against,  108. 

arguments  in  favor  of.  109 

causes  of,  107,  108. 
Wood,  see  Forests. 
World  markets,  243 


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